German Central Bank Warns: Potential Recession in the Third Quarter

SadaNews Economy - Estimates from the German central bank indicate that the German economy is unlikely to achieve significant leaps in this ongoing quarter, as mentioned in the bank's report for August, published in Frankfurt on Thursday.

The bank stated in its monthly report: "In the third quarter, economic performance may remain almost stagnant."

However, these estimates were slightly more optimistic compared to what they were at the beginning of June, as the bank's current forecasts suggest that Germany's GDP may record a slight increase instead of the recession previously anticipated, meaning that Europe's largest economy will barely avoid a third consecutive year without growth.

According to revised figures from the Federal Statistical Office, the German economy grew slightly in the last quarter of 2024 and did not contract.

Experts from the German central bank regarded this development as providing the economy with a "better starting platform" for the current year. They added: "Moreover, the unexpectedly positive development in sentiment indicators hints at a slight improvement in the third quarter."

Nevertheless, the bank deemed that the level of uncertainty remains high even after reaching a preliminary agreement in the trade dispute between the United States and the European Union, due to "open questions and the volatile economic policies of the United States." The report noted that the burdens on exports labeled "Made in Germany" to the United States will rise in any case.

In general, the bank excluded that local industry would bring "any growth momentum" in the third quarter and ruled out any strong boost from the construction sector, despite signs of a recovery in the volume of orders in this sector. The bank believes that weak expectations in the labor market will lead to a reduction in private consumption.

Initial calculations from the Federal Statistical Office indicated that economic growth in Germany contracted by 0.1 percent in the second quarter compared to the previous quarter. The office, based in Wiesbaden, is scheduled to provide more detailed information about economic developments in the spring season tomorrow, Friday.