The German economy is expected to gradually recover in 2024 followed by stronger growth in the years ahead, according to new forecasts published by the Bundesbank. Real gross domestic product (GDP) is projected to increase by 0.3% this year, slightly lower than the December forecast of 0.4%. However, output growth is expected to accelerate, expanding by 1.1% in 2025 and 1.4% in 2026.
Bundesbank President Joachim Nagel stated that “The German economy is slowly extricating itself from the period of economic weakness.” He also mentioned that households are benefiting from strong wage growth, declining inflation, and a stable labor market. This outlook reflects Germany’s rebound from last year’s slump, despite challenges in the manufacturing sector that have been highlighted recently.
Although industrial output unexpectedly fell for a second consecutive month in April, Germany’s labor market has remained resilient with an unemployment rate holding steady at 5.9%. Companies are facing shortages of skilled staff, leading them to retain existing employees even during times of lower demand. This could mean that an economic upswing might not immediately result in increased hiring.
The Bundesbank anticipates that private consumption will gradually increase and export business will improve in the second half of the year. This, in turn, is expected to lead to stronger growth in the industrial sector. The forecast for inflation has been slightly adjusted, with consumer-price growth predicted at 2.8% for this year and moderate declines in the following years.
Nagel warned that while inflation is declining, it is doing so at a subdued pace. He emphasized that the ECB Governing Council is not making decisions on interest-rate cuts on auto-pilot. The Bundesbank’s projections come after the ECB’s recent rate cut announcement, which has left investors unclear about the future direction of policy as the central bank expects inflation to take longer to reach its target of 2%.
.png)
