5 July 2023 / According to the Bundesbank, the German economy is recovering from the crises of the last three years. In particular, the German economy is still struggling with the consequences of high inflation.

For 2023 as a whole, the Bundesbank expects GDP to decline by 0.3%, followed by growth of 1.2% in 2024 and 1.3% in 2025.

Easing inflation, strongly rising wages and a robust labor market will come together in the near term. As a result, household’s purchasing power will gradually increase. However, tighter monetary policy has led to higher financing cost, dampening private investment, especially in housing construction.

In addition, the stronger euro and high wage dynamics constitute a headwind for exporters. Thanks to rising foreign demand, exports are still increasing moderately.

Although energy price inflation is declining, core inflation (i.e. excluding energy and food) is persisting at a high level. The inflation rate as measured by the Harmonised Index of Consumer Prices (HICP) is set to fall from 8.7% last year to 6%in the current year. In the next two years it will be 3.1% and 2.7% respectively.

The pace of employment growth is likely to slow in the current half – year. A particular role will be played by the fact that refugees who arrived in Germany over the past years will then by increasingly available to the labor market. This is because firms demand for labor will remain high and the supply of labor will grow slightly over time. The Bundesbank expects unemployment to decline over the next two years and, by 2025, return to its previous record low from 2019.

Source: Deutsche Bundesbank


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