Market Analysis

Germany's economy is expected to grow slightly slower this year than previously predicted, while inflation is likely to be marginally higher, according to the Bundesbank’s biannual update released on Friday.

The Bundesbank now forecasts that the euro zone’s largest economy will grow by just 0.3% this year, down from the 0.4% projected in December. Growth is anticipated to accelerate to 1.1% next year, a slight downgrade from the previous forecast of 1.2%.

Over the past year, Germany's economy has faced challenges, with its significant industrial sector experiencing a deep recession due to weak export sales. However, recent months have shown signs of improving demand, indicating that both Germany and the euro zone might be emerging from economic stagnation and entering a gradual recovery phase.

"The German economy is moving out of a period of economic weakness," stated Bundesbank President Joachim Nagel.

In its report, the Bundesbank also adjusted its inflation forecasts upward, following the European Central Bank's first interest rate cut since 2009, which was prompted by better economic prospects.

"Inflation remains stubborn, particularly in the services sector," the Bundesbank noted.

The Bundesbank now expects price growth to reach 2.8% this year, up from the 2.7% forecast six months ago. For 2025, inflation is projected at 2.7%, compared to the earlier prediction of 2.5%. The outlook for 2026 remains unchanged at 2.2%.

"While Germany's inflation rate is gradually declining, the process is slow," said Nagel. "The ECB Governing Council is not proceeding with interest rate cuts on autopilot."

Paraphrasing text from "Bundesbank" all rights reserved by the original author.