German economy to shrink in Q3: Bundesbank

THE German economy is likely to shrink this quarter, as industry is in recession and private consumption is adding little to growth, the Bundesbank said in a monthly economic report on Monday (Sep 18).

Europe’s biggest economy suffered a brief recession around the turn of the year and produced flat growth in the second quarter, so a contraction in the current period would mean four straight quarters with negative or flat growth.

“Despite the somewhat slowing pace of price increases, strong wage increases and the good labour market, private households are still holding back on spending,” the central bank said. “In addition to consumer restraint, the increasing weakness of industry is also weighing on economic performance,” it added.

Eurozone inflation has halved since late 2022, but remains uncomfortably high at 5.3 per cent. The European Central Bank has now raised its deposit rate to a record-high 4 per cent, in a bid to arrest quick price growth. This rise in financing costs will also weigh on growth, the Bundesbank said, as will the declining order intake for Germany’s vital and vast industrial sector.

“The low and continued decline in incoming orders, and the declining order backlog are increasingly having an impact on industrial production,” the central bank said.

Germany’s industry, which is heavily exposed to exports, has been particularly hard hit by weak demand from China and its prospects for recovery remain weak, market economists say.