No sign of economic recovery in third quarter
German economic output is likely to contract somewhat in the third quarter of 2023, the Bundesbank writes in its Monthly Report. It is unlikely that private consumption will offer any discernible positive impetus. Households are still reluctant to spend despite the slight easing in price inflation, strong wage growth and favourable labour market. Consumer-related areas of the services sector are also suffering from weak private consumption. In addition, economic output is being depressed by the increasingly persistent weakness in industry. This will affect those services sectors that are more dependent on industry.
Steep fall in industrial output
In July, industrial output fell steeply on both the month and the quarter. Sectors such as motor vehicle production, which had previously supported industrial output, saw a marked slump. In addition, energy-intensive sectors continued to suffer from high energy prices. The Bundesbank's experts expect the weakness in industry to continue. This was indicated by industrial new orders in July, which showed a sharp quarter-on-quarter fall in demand for industrial goods both from Germany and abroad. According to ifo Institute surveys, production plans for the next three months suggest a further decline in industrial activity.
Labour market stable
The labour market remained stable until recently despite the current weakening of the German economy. Employment rose marginally in July after seasonal adjustment. However, registered unemployment also edged up slightly by 18,000 persons to 2.63 million in August. This corresponds to a rate of 5.7%. In view of the current strains, unemployment thus remained very stable at a comparatively low level. The monthly survey by the Federal Employment Agency, the IAB unemployment barometer, deteriorated somewhat recently and is thus pointing to a further slow rise in unemployment in the autumn.
Inflation rate still high
August saw consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) increasing significantly on the month by 0.5% in seasonally adjusted terms, following a rise of only 0.1% in July.
Whilst energy prices went up again, unprocessed food prices saw another slight decrease, the experts write. The inflation rate fell only marginally, from 6.5% to 6.4%. The Bundesbank expects annual HICP inflation to come down further in the coming months. In September 2023, for example, the price-driving base effects resulting from the temporary fuel rebate and the "€9 ticket" from June to August 2022 will no longer be present.
"Nevertheless, given robust wage growth, the inflation rate is likely to remain well above 2% in the medium term, too, the report states.