German recession doesn’t mean severe downturn, Bundesbank says

THE German economy isn’t facing a severe downturn even if it may be in a recession right now, according to the Bundesbank.

While the Frankfurt-based central bank acknowledged that output could be falling currently for a second consecutive quarter, it cautioned against reading too much into that.

“A recession in the sense of a significant, broad-based and prolonged decline in economic output cannot be identified and is currently not expected,” the Bundesbank said in its monthly report released on Monday (Feb 19).

Germany was the only Group of Seven economy to shrink last year as its outsized manufacturing sector suffered from a lingering energy shock and feeble foreign demand. Its weakness is weighing on the euro area as a whole. 

While the Bundesbank said that the country facing ongoing challenges, it warned against too much pessimism. 

“In particular, the income situation and thus the consumption of private households should continue to improve in the future against the backdrop of a stable labour market, strongly rising wages and a declining inflation rate,” the central bank said.

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Less upbeat was the Duesseldorf-based IMK institute, which said on Monday that there is a high and even slightly increasing risk that the slump will extend into the second quarter.

For the period from February to the end of April, its indicator, which combines the latest available data on the most important economic indicators, shows a recession probability of 61.7 per cent. At the beginning of January, it was 56.8 per cent for the following three months. BLOOMBERG