FRANKFURT (Reuters) – Germany’s expected contraction in 2023 is likely to be smaller than previously forecast and inflation is expected to stay above 2% through 2025, the Bundesbank said in its half-yearly economic forecast released on Friday. .
The German central bank now forecasts a fall in gross domestic product (GDP) of 0.3% in 2023, compared to a forecast of -0.5% in December. Despite this slight improvement, the expected contraction is greater than that anticipated by the European Commission at 0.2%.
GDP is then expected to grow by 1.2% in 2024 and 1.3% in 2025, both figures lower than previous forecasts, the institution said.
“The German economy is expected to recover only with difficulty from the crises of the past three years,” said the Bundesbank. “In particular, it still has to deal with the consequences of high inflation, even if it is easing.”
Inflation, whose target of the ECB is 2%, should reach 6% this year, against 6.8% estimated by Brussels. The Bundesbank sees price increases slow to 3.1% next year and then to 2.7% in 2025.
“Decisive action on monetary policy is essential to counter the economic and societal risks of more persistent inflation,” said Joachim Nagel, President of the Federal Bank of Germany, in a statement.
The institution has long advocated a stricter monetary policy, even as its important industrial sector suffers from the sharp slowdown in activity.
These new forecasts come the day after the eighth rate hike in a row by the European Central Bank, which intends to continue its monetary tightening.
(Balazs Koranyi, Laetitia Volga, edited by Blandine Hénault)
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