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The Bundesbank expects a recession in the winter semester

Exploding energy prices are weighing on companies and consumers in Germany. According to the Bundesbank, the outlook for the coming months is bleak.

The Bundesbank expects an economic downturn in the coming months

Germany and persistently high inflation. Despite surprising economic growth in the summer quarter, further recession is expected in the winter semester, the central bank wrote in its monthly report released on Wednesday.

“The inflation rate could remain in the double digits beyond the end of the year.” The acceptance of the gas advance by the State in December will relieve consumers. “But it is not yet clear to what extent this is reflected in the official price measurement and thus in the inflation rate.”

The annual rate of inflation rose to 10.4% in Germany in October. The Bundesbank now sees an increased risk of second-round effects. If inflation leads to higher collective bargaining agreements and therefore wage costs, this can fuel inflation. Then wages and prices would rise and inflation would solidify.

According to the Bundesbank, the latest wage deals have been increasingly strong. In addition, the unions have called for exceptionally high wage increases in view of inflation. The Verdi union, for example, is asking for 10.5% more public sector money in federal and local governments over a twelve-month period. It is unlikely that these demands will actually lead to wage settlements of the same magnitude, the central bank wrote. “While this does not indicate an acceleration in wage-side inflation, the risk of second-round effects has increased.”

According to economists, economic development in Germany is slowed down by, among other things, uncertainty about the energy supply and rising energy prices. This puts a strain on companies. The weakening of the global economy should have repercussions on exports and inflation is holding back private consumption. Furthermore, the construction sector is likely to continue to cool. However, the extent of the expected recession is highly uncertain.

According to preliminary data, Europe’s largest economy grew an astonishing 0.3% in the third quarter compared to the previous quarter. The Federal Statistical Office plans to announce the details on Friday.

Exploding energy prices are weighing on companies and consumers in Germany. According to the Bundesbank, the outlook for the coming months is bleak.

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