Bundesbank says recession in Germany increasingly likely

As energy costs keep pushing inflation higher, a peak is unlikely before the autumn at around five times the European Central Bank’s 2 per cent target.

Germany is increasingly likely to witness a recession with accelerating inflation, which could peak at more than 10 per cent this autumn, according to the Bundesbank, which said in a monthly report recently that the high degree of uncertainty over gas supplies this winter and the sharp price rise are likely to weigh heavily on households and companies.

“Declining economic output in the winter months has become much more likely,” the central bank said.

The likelihood of a recession is widely attributed to Russia curtailing gas exports to Germany in response to Western sanctions over the former’s war in Ukraine.

The country is already forced to curtail consumption, with energy-intensive sectors suffering heavily.

“The upside risk for inflation is high, in particular in the event of a complete stoppage of gas supplies from Russia,” the Bundesbank said.

The bank also cautioned about resulting rapid wage hikes, especially given record low unemployment, which could perpetuate high inflation via a wage-price spiral.

Fibre2Fashion News Desk (DS)