Bundesbank cuts German growth rate slightly this year, but remains optimistic | Economy

The economic situation in Germany remains uneven. While exports rose more than expected in April, boosting recovery hopes, production fell, prompting the Bundesbank to slightly lower its growth forecast for this year and bring it in line with government forecasts. However, experts at the German central bank are optimistic, and after almost two years of a series of negative news, the president of this institution, Joachim Nagel, announced that “the German economy is emerging from a phase of weakness.”

Germany will grow slowly again this year before accelerating more significantly in subsequent years, according to the Bundesbank’s half-year economic forecasts released this Friday. “Not only will private consumption gradually recover, but also exports will improve from the second half of the year,” write central bank experts. “In this context, the industry will also emerge stronger again,” they add.

“Households are benefiting from strong wage growth, a gradual decline in inflation and a stable labor market,” Nagel said, explaining the organization’s latest six-month economic forecasts. In the first quarter, the German economy surprised by a slight growth of 0.2%, supported by exports and increased investment in construction.

For all of 2024, gross domestic product (GDP) is forecast to grow 0.3% – seasonally adjusted – compared with 0% recorded last year. Meanwhile, experts predict economic growth at 1.1% in 2025 and 1.4% in 2026. At the same time, the Bundesbank slightly reduces its forecasts for December 2023, when it set growth of 0.4% in 2024 and 1.2% by 2025; but it improves on 2026 numbers, having previously forecast growth of 1.3%.

The Bundesbank justifies this small correction by saying that “the overall economy in the short term was somewhat weaker than expected in the forecasts for December 2023.” In particular, weak demand in the industry is proving more resilient than expected, experts say. “In this context, and due to greater policy uncertainty and high cost burdens, companies have slowed their national investments more than expected,” they note. However, they hope that for the first time since the start of the energy crisis, industries with high energy consumption have “significantly” increased their production and, in addition, construction has “proven to be more resilient than ever.” “expected”.

As for the inflation rate, it is expected to continue to decline, “but at a moderate pace,” Nagel said. The Bundesbank expects the change in the cost of living this year to average 2.8% (2.7% in December forecasts, but significantly lower than last year’s 6%). The reason for this moderation is, first of all, that energy and food prices are “falling significantly.” However, the bank warns that inflation appears “persistent”, especially in the services sector. “The sharp rise in wages and the resulting pressure on costs play an important role in this regard,” the Bundesbank explains in its report. Meanwhile, for 2025 it forecasts inflation at 2.7% (2.5% in December forecast), and for 2026 at 2.2%, which is in line with the previous forecast and closer to the 2% target, which pursued by central banks, including European ones. The central bank that dictates monetary policy in the eurozone.

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