German economy recovers arduously, no all-clear signal for inflation
19 Jun 23 2 min read
Insights
- Germany's central bank recently said the country's economy, still struggling with the impact of high inflation, is set to recover only arduously from the crises of the past three years.
- This is reducing citizens' purchasing power.
- The GDP is set to contract by 0.3 per cent and the inflation rate is set to fall from 2022's 8.7 per cent to 6 per cent this year
This is reducing citizens’ purchasing power, Bundesbank president Joachim Nagel said recently.
Although the economy is slowly regaining its footing this year, gross domestic product (GDP) is set to contract by 0.3 per cent due to the decline in the past winter half-year, the central bank said in a release.
“We are seeing a welcome decline in inflation, but we’re still far from giving the all-clear signal,” Nagel said.
- Rate of change of Italian CPI up 0.2% MoM, 0.8% YoY in May
- UK CPI up 2%, producer input prices fall 0.1% in 12 months to May: ONS
- Seasonally-adjusted US PPI for final demand falls 0.2% in May
- Poland’s consumer prices up 2.5% YoY in May; goods prices up 1.2% YoY
- Dutch inflation steady at 2.7%, clothing prices plunge in May
- Signs of economic recovery emerge in Sri Lanka, inflation low: IMF
Although energy price inflation, in particular, is declining rapidly, core inflation (i.e. excluding energy and food) is persisting at a high level.
Overall, the inflation rate as measured by the harmonised index of consumer prices (HICP) is set to fall from 8.7 per cent last year to 6 per cent this year. In the next two years it will be 3.1 per cent and 2.7 per cent respectively, according to the bank.
Declining inflation, strongly rising wages and a robust labour market will come together in the near term, explained Nagel.
Tighter monetary policy has led to higher financing costs, thereby dampening private investment. In addition, the stronger euro and the high wage dynamics constitute a headwind for exporters.
Thanks to rising foreign demand, though, exports are still increasing moderately.
Real government consumption will decline sharply this year due to pandemic-related expenditure petering out, and will then rise significantly again, the press release noted.
All in all, economic growth of 1.2 per cent and 1.3 per cent can be expected in 2024 and 2025 respectively, Nagel added.
Fibre2Fashion News Desk (DS)
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