Declining economic output and double-digit inflation

According to the Bundesbank, the prospects for the German economy are becoming increasingly gloomy. A decline in economic output in the winter half-year has “become much more likely,” writes the Bundesbank in its monthly report for August, which was published on Monday.

“Economic development in Germany will be adversely affected by the unfavorable developments on the gas market in the summer quarter and beyond,” explained the Bundesbank economists. For July up to and including September 2022, they expect German economic output to “again roughly stand still”.

The Federal Statistical Office had already calculated that gross domestic product (GDP) would stagnate in the second quarter compared to the previous quarter. The Wiesbaden authorities want to publish detailed results for the period from April to June this Thursday (25 August).

“The high level of uncertainty about the gas supply in the coming winter and the sharp price increases are likely to weigh heavily on private households and companies,” predicts the Bundesbank. The central bank now assumes that the inflation rate in Germany will reach “an order of magnitude of ten percent” in autumn could.

Energy price jumps as a result of the Ukraine war and rising food prices have been fueling inflation for months, it said. On the other hand, the lifting of the corona restrictions is boosting private consumption. “In addition, the latest data suggest that industry and foreign trade have defied the negative factors to the very end,” analyzes the Bundesbank. “The probability that GDP will decline in the coming winter months has nevertheless increased significantly due to the unfavorable developments on the gas market.”

According to the Bundesbank, German public finances are “still well positioned to be able to stabilize the economy even in the event of an unfavorable development”. At the same time, the Bundesbank is warning that the debt brake should be adhered to again in the coming year. This will also not lead to a “fiscal emergency brake” that “chokes on economic development”. The debt brake, which has been anchored in the Basic Law since 2009, only allows the federal government to make new loans to a limited extent. In 2020 and 2021, due to the high burden of the pandemic, the federal government made use of the exemption to temporarily suspend this instrument in emergency situations. (dpa)

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