Bundesbank expects a slight decline in the German economy

(Patria) - The German economy will likely shrink in the first quarter as well, and core inflation could prove stubborn due to rising prices for services and industrial goods, warned Bundesbank in its monthly report.

Europe's largest economy contracted by 0.4 percent in the last quarter of 2022, and its huge industrial sector is only beginning to recover, with high inflation putting strong pressure on consumption, Hina reports.

"German economic activity will likely fall again in the current quarter. However, the decline will probably be smaller than in the last quarter of 2022," stated Bundesbank.

Although a recession, defined as two consecutive quarters of declining activity, remains the most likely outcome, the labor market has proven resilient, and the central bank expects positive employment trends to continue.

The inflation rate is likely to fall sharply in March due to a base effect that will reduce energy price growth compared to last March, but price growth will remain uncomfortably high.

"Core inflation, which excludes food and energy prices, has proven extremely persistent," the bank announced, adding that it could even increase slightly towards the middle of the year.

Core inflation in the eurozone, which excludes volatile food and fuel prices, remains at a high level, driven by stronger price increases for services and industrial goods, they point out.

Thus, in February, the core inflation rate was 0.3 percentage points higher than in January and reached 5.4 percent again, as it was in December, which is its highest level since data has been published, warned Bundesbank.