Germany Economic Outlook
After going into recession in Q1, the economy flatlined in Q2. Private and government spending picked up, but investment and exports lost steam, likely owing to recent interest rate hikes and a lagging global economy, respectively. Turning to Q3, our panelists expect the economy contract slightly. Last month, they predicted a slight growth acceleration in Q3, but recent economic data has dimmed expectations. Export, retail and industrial production data all disappointed the market, and inflation data was higher than expected. As well as a lagging global economy, the country is facing the challenge of rising export competition from China: At the latest edition of Germany’s annual auto event in September in Munich, the number of Chinese car manufacturers doubled compared to the last event in the city two years ago.
Harmonized inflation fell less than expected in August, to 6.4% from 6.5% in July. Inflation excluding energy and food remained stable, suggesting that price pressures may be stubborn ahead. That said, inflation is projected to ease from current levels through the end of 2023 and 2024 as consumer spending remains weak and the base effect toughens.