INSIGHTS
- Germany’s economy is slowly regaining its footing after a roughly two-year period of weakness, and the GDP is expected to grow by a calendar-adjusted 0.3 per cent this year, the central bank said.
- In 2025 and 2026, it is projected to grow by 1.1 per cent and 1.4 per cent respectively.
- Consumption and exports will drive the recovery over the next two years.
The German economy is slowly regaining its footing after a roughly two-year period of weakness, and the gross domestic product (GDP) is expected to grow again somewhat this year and then increase in a stronger manner in the following years, according to the Deutsche Bundesbank’s current forecast for the country.
It is extricating itself from the period of economic weakness, the German central bank president Joachim Nagel said in a release.
Not only will private consumption gradually pick up again, but export business will also improve again from the second half of the year. Against this backdrop, industry will also grow stronger again.
Consumption and exports will drive the economic recovery over the next two years as well.
Households are benefiting from strong wage growth, a gradual decline in inflation and a stable labour market, Nagel explained.
“While the inflation rate in Germany is continuing to decline, the pace is subdued. We on the ECB [European Central Bank] Governing Council are not driving on auto-pilot when it comes to interest rate cuts,” he said.
The forecast says real GDP in Germany will rise by a calendar-adjusted 0.3 per cent this year. In 2025 and 2026, the German economy will then grow by 1.1 per cent and 1.4 per cent respectively.
Experts at the bank are expecting inflation as measured by the harmonised index of consumer prices (HICP) to decline from an annual average of 6.0 per cent last year to 2.8 per cent this year, up from the 2.7 per cent the Bundesbank had been expecting in December.
Energy and food price inflation in particular is likely to ease considerably this year. However, inflation is proving to be stubborn, especially in the case of services, where strong wage growth and the resulting cost pressures are major factors.
Negotiated wages are expected to rise particularly sharply this year and continue to see strong growth thereafter. Energy price inflation will also pick up again somewhat.
The Bundesbank’s experts are expecting headline inflation to decline slightly to 2.7 per cent in 2025, before dropping more sharply to an average of 2.2 per cent in 2026. Core inflation (the rate excluding energy and food) is expected to decrease only hesitantly, falling to 3.1 per cent this year, 2.5 per cent in 2025 and 2.3 per cent in 2026.
The forecast for Germany sees public finances improving, with the government deficit ratio expected to shrink from 2.5 per cent last year to 1.1 per cent in 2026. Until 2025, this will be due to the expiry of fiscal crisis assistance measures.
Source: https://www.fibre2fashion.com/