The EU’s economic engine will continue to stall despite declining inflation, the German central bank warns
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German economic output stagnated in the second quarter of 2023 after contracting in the two previous quarters, and growth is expected to remain muted in the near term, the Bundesbank reported on Monday.
“Economic output is likely to more or less stagnate again in the third quarter of 2023,” the central bank wrote in a monthly report.
According to the forecast, industrial output is set to remain weak, as foreign demand has been on a downward trend lately.
“High financing costs will probably continue to weigh on investment. They are also still dampening demand in the construction sector, which is likely to be increasingly reflected in production,” the German regulator stated.
The Bundesbank also said the German government will record a significant deficit in 2023 as it continues to provide extensive crisis-related support to enterprises and households, mainly by using energy price brakes.
READ MORE: Germany faces ‘exceptionally difficult years’ – study
On the positive side, the report predicted that due to stable employment and strong wage growth, as well as declining inflation, the recovery in private consumption is likely to continue, which will also give a boost to the services sector.
The International Monetary Fund forecast last month that Germany will be the only G7 economy to contract this year, as it struggles with the fallout from the energy crisis.
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