Germany’s economy is likely to end the year in stagnation, following a shallow recession in the six months through September, according to the Bundesbank, Germany’s central bank, Bloomberg reports.
In its monthly report released on Thursday, the Bundesbank forecasts a “slight” contraction in output for the third quarter, following a 0.1% drop in the second quarter. The report also suggests that GDP will remain broadly stable in the final three months of the year, dismissing the possibility of a deeper downturn.
However, despite avoiding a steep decline, the German economy faces challenges, particularly in its manufacturing sector, which has been experiencing a prolonged slump. The Bundesbank attributes this weakness to high borrowing costs, political uncertainty, and weak demand in industry and construction.
While a recent survey by S&P Global showed that the downturn in private-sector activity eased in October, with the services sector continuing to grow, concerns remain about household consumption, which has not recovered as strongly as anticipated.
The report highlights the significant pressure on businesses to increase wages, with salary demands remaining elevated despite the rapid decline in inflation. The Bundesbank predicts that salary increases in Germany could outpace those in other euro-area nations in the coming quarters, particularly in the services sector, where staff shortages are contributing to wage pressures.
