The Bundesbank recently published fresh forecasts indicating that the German economy is expected to slowly gain momentum in 2024, with stronger growth anticipated in the years following. Real gross domestic product is projected to increase by 0.3% this year, a slight adjustment from the previous forecast of 0.4% made in December. Output growth is expected to accelerate further, expanding by 1.1% in 2025 and 1.4% in 2026.
Bundesbank President Joachim Nagel stated that the German economy is emerging from a period of economic weakness. Strong wage growth, a gradual decline in inflation, and a stable labor market are all contributing to this positive outlook. Despite the struggles faced by the key manufacturing sector, Germany is showing signs of rebounding from last year’s slump.
While industrial output has experienced unexpected declines, the labor market remains resilient with unemployment holding steady at 5.9%. This stability is due to companies retaining workers amid shortages of skilled staff. As a result, any economic upswing may not necessarily result in increased hiring as companies utilize existing staff to meet demand.
The Bundesbank anticipates that private consumption will gradually increase and export business will improve in the second half of the year. This is expected to drive stronger growth in the industry as well. In terms of inflation, the Bundesbank raised its forecast slightly for this year, predicting consumer-price growth at 2.8%. Core inflation is projected to slow in the coming years.
Nagel emphasized that the inflation rate is declining at a subdued pace. He also indicated that the ECB Governing Council is not on auto-pilot regarding interest-rate cuts. These projections were released following the ECB’s recent rate cut, which left investors uncertain about the future direction of monetary policy and the timeline for inflation to reach 2%.