Germany’s Economic Growth Forecasts Lowered by Bundesbank

The Bundesbank, Germany’s central bank, has revised its growth forecasts for the country’s economy for the next two years. The downward revision is attributed to lower global demand, as stated in the bank’s twice-yearly report published on Friday.

According to the new forecasts, Germany’s gross domestic product (GDP) is expected to grow at a rate of 0.4% and 1.2% in 2024 and 2025, respectively. This represents a decrease from the earlier projections of 1.2% and 1.3%, which were made in June.

The report also indicates a projected decline of 0.1% in GDP for 2023 as a whole, with growth predicted to reach 1.3% in 2026.

The primary factor weighing on Germany’s key industrial sector is weak foreign demand. Additionally, restrained private consumption and higher financing costs are further dampening investment, according to the report.

However, the Bundesbank highlights several positive factors that are expected to benefit the economy. These include a robust labor market, strong wage growth, and a decrease in inflation, which is anticipated to spur a recovery in household spending.

Bundesbank President Joachim Nagel expressed optimism regarding the future, stating, “From the beginning of 2024, the German economy is likely to return to an expansion path and gradually pick up speed.”

Furthermore, the report reveals that inflation is projected to fall at a faster rate than previously anticipated. The harmonized annual inflation rate, based on European Union metrics, is estimated to reach 2.7% and 2.5% in 2024 and 2025, respectively. These figures represent a decline from the earlier forecasts of 3.1% and 2.7% given in June.

Nagel remarked, “Monetary policy tightening is increasingly yielding results,” while cautioning that inflation is still expected to surpass the European Central Bank’s 2% target in 2026, remaining at 2.2%.

The Bundesbank also addressed the recent budget-related turmoil within the German government. It stated that although the agreement for the 2024 budget was only reached this week, it is not anticipated to have a significant impact on the fiscal and macroeconomic outlook.

However, uncertainty remains regarding future fiscal policy, particularly for 2025, as well as the country’s transition to cleaner energy, as noted by the central bank.

In conclusion, while Germany’s growth forecasts have been revised downwards due to lower global demand, there are positive factors that are expected to support a recovery in the economy. The impact of budget-related issues is deemed to be limited, although uncertainties persist surrounding future fiscal policy and the energy transition.