Bundesbank Forecast for Germany: German economy poised for recovery
The German economy is showing signs of slowly regaining its footing, according to the latest forecast from the Bundesbank. After a period of weakness lasting approximately two years, the central bank anticipates a gradual improvement in private consumption and export business in the coming months. This positive outlook extends to the industrial sector, which is expected to experience stronger growth moving forward.
Bundesbank President Joachim Nagel expressed optimism about the economic recovery, with real gross domestic product (GDP) projected to increase by 0.3% this year. Looking ahead, experts foresee economic growth of 1.1% in 2025 and 1.4% in 2026, indicating a positive trajectory for the German economy. Despite a slight contraction in economic output in the fourth quarter of 2023, the first quarter of 2024 saw a modest expansion, setting the stage for future growth.
The report highlights the resilience of the construction sector and the renewed output from energy-intensive industries as key drivers of economic recovery. Additionally, private consumption and exports are expected to play a crucial role in stimulating economic growth. While challenges persist in certain sectors, the overall outlook is optimistic, with consumer activity and industrial production projected to strengthen in the coming quarters.
Inflation rates are also expected to moderate gradually, with a decline anticipated in the coming years. Despite persistent inflation in services due to wage growth and cost pressures, the overall inflation rate is forecasted to decrease to 2.7% in 2025 and 2.2% in 2026. The core inflation rate, excluding energy and food prices, is also projected to follow a similar downward trend over the forecast period.
As the economy continues to recover, the labour market is expected to tighten, leading to moderate employment growth and a gradual decline in unemployment rates. Demographic factors are likely to impact labour supply, resulting in increased labour market tightness by 2025. However, rising labour productivity is expected to support economic growth as working hours per employee increase.
Public finances are also expected to improve, with the government deficit ratio projected to shrink to 1.1% by 2026. This improvement is attributed to the expiry of fiscal crisis assistance measures and more restrained central government spending. The debt ratio is forecasted to fall to slightly over 60% by 2026, reflecting a positive outlook for Germany’s fiscal health.
In conclusion, the Bundesbank’s forecast paints a promising picture of the German economy’s recovery trajectory, with key indicators pointing towards sustained growth and stability in the coming years. As the country navigates through economic challenges, the outlook remains positive for both businesses and consumers alike.
