Prognosis of the economic situation - Bundesbank reports German economy starting to pick up steam.
The German economy is starting to stabilize after two years of decline, according to the Bundesbank. This recovery is being driven by increasing private consumption and better export business in the second half of the current year. The central bank's president, Joachim Nagel, said in the most recent six-month forecast that households in Germany are benefiting from rising wages, a decrease in inflation, and a stable labor market.
In the first quarter, the German economy saw a mini-growth of 0.2% due to exports and increased construction investments. The Bundesbank forecasts a 0.3% growth in GDP for the whole year 2024, which is a slight reduction from the 0.4% growth predicted in December. For 2025 and 2026, they expect slightly stronger growth: 1.1% and 1.4%, respectively.
The inflation rate in Germany is dropping, but at a slower pace than previously expected. The central bank now anticipates a CPI inflation rate of 2.8% this year and 2.7% in 2025. In their December forecast, they predicted 2.7% for 2024 and 2.5% for 2025. Their forecast for Germany's inflation rate in 2026 remains unchanged at 2.2%.
"The inflation for energy and food is declining significantly this year," noted the Bundesbank. "However, inflation remains stubborn, particularly in the service sector. Rising wages and the resulting cost pressure are playing a crucial role in this."
The ECB is cautious about making more interest rate cuts. They aim to maintain medium-term price stability, which is an annual inflation rate of 2% for the entire euro area. High inflation rates erode the purchasing power of consumers, making it harder for them to afford goods and services. Nagel stated after the ECB Council's decision to lower interest rates on Thursday that they won't automatically continue making more cuts: "When it comes to interest rate cuts, we're not on autopilot in the ECB Council."
