Premature hope: Bundesbank boss Joachim Nagel expects the German economy to have a weak start to the new year. Picture Alliance
Just before Christmas, the Bundesbank surprised with a positive outlook. The German economy will move onto an expansion path in 2024.
The Bundesbank regained its confidence in just one month. The economy is weaker than expected. The recovery will be delayed.
But postponed is not canceled. The Bundesbank sees positive developments particularly in inflation, income and the labor market.
The Deutsche Bundesbank is known for its sober, rather harsh assessments. In the generally gloomy mood, it was all the more surprising with a bright outlook recently: “From the beginning of 2024, the German economy is likely to return to an expansion path and gradually pick up speed,” wrote Bundesbank boss Joachim Nagel. That was mid-December. A month later, the optimism has already evaporated. “Overall, the economy is currently slightly weaker than expected in the December projection,” writes the Bundesbank in its January report. “This would delay the recovery expected in the December projection.”
At that time, the Bundesbank had already lowered its forecast for economic growth in Germany this year to 0.4 percent. Even this mini-growth now seems more difficult to achieve, as the new year is off to a weak start. “All in all, German economic performance could at best stagnate in the first quarter of 2024,” says the monthly report.
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Contrary to expectations, foreign demand for industry has not yet reached its lowest point. Domestically, high interest rates continued to dampen investments, especially in housing construction. And: “The uncertainty about the direction of fiscal and climate policy is likely to have weighed on economic activity.” Consumers hardly increased their consumption, even though they have more money at their disposal. “The labor market remained robust, inflation was declining and wages grew strongly,” writes the Bundesbank. But the economy has recently been slowed down by construction pauses due to the winter weather and sickness absence.
According to the Bundesbank’s assessment, the recovery has been postponed, but not canceled. Because there are bright spots. Inflation is now falling noticeably. At the same time, incomes are rising sharply. On the one hand, this is due to wage and salary increases. But this is also due to the continued positive development on the labor market. It is particularly pleasing that employment subject to social security contributions grew significantly by the end of the year. The leading indicators for employment have “improved across the board – albeit only slightly”. “The outlook for the next few months is less unfavorable than recently,” writes the Bundesbank – at least for the labor market.
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