The inflation rate as measured by the Harmonised Index of Consumer Prices (HICP) sees a slight fall in 2025 from an annual average of 2.5 per cent to 2.4 per cent. From 2026 onwards, however, the inflation rate in Germany is projected to gradually return to 2 per cent due to the previous monetary policy and decreasing price pressures from labour costs, Bundesbank said in a press release.
Germany’s GDP is forecast to decline 0.2 per cent in 2024, with slight growth of 0.2 per cent in 2025 and stronger expansion of 0.8 per cent in 2026 and 0.9 per cent in 2027, per Bundesbank’s report.
Inflation (HICP) will ease to 2.4 per cent in 2025, returning to 2 per cent by 2026.
Structural issues, weak exports, and sluggish investments persist, and debt ratios expected to fall gradually.
Excluding energy and food, i.e. in terms of the core rate, the inflation is projected to decline from 3.3 per cent this year to 2.4 per cent next year and to 1.9 per cent in 2026. The core rate is set to increase again slightly with the economic recovery towards the end of the forecast horizon. For 2027, the bank projects core rate at 2.0 per cent.
“The German economy is not only struggling with persistent economic headwinds, but also with structural problems,” said Joachim Nagel, president of the Deutsche Bundesbank, at the unveiling of the Bundesbank’s December Forecast for Germany. “This is affecting the industrial sector, as well as its export business and investments. The labour market, too, is now responding noticeably to the protracted weakness of economic activity.”
The Bundesbank experts anticipate only a gradual pick-up in export business. They assume that, after a further delay, business investment will also increase again. “Although private consumption is set to grow throughout, it is no longer as dynamic as previously expected,” added Nagel.
In view of the temporary cooling of the labour market and a decline in wage growth, consumer spending initially goes up only marginally. Overall, the growth outlook has thus been revised sharply downwards over the entire forecast horizon compared with the June forecast for Germany, said the release.
The government deficit ratio is expected to decrease slightly from 2.6 per cent in 2023 to 2.4 per cent in 2027. The expiry of government assistance measures put in place to address the energy crisis will provide some relief. However, other expenditure, such as social security, interest and defence spending, is projected to climb steeply. The debt ratio falls to 61.7 per cent by 2027 from 62.9 per cent in 2023.
There is also uncertainty surrounding geopolitical conflicts, the impact of structural changes and the orientation of future fiscal and economic policy following the Bundestag elections in February. All in all, the prevailing risks at present are of even weaker economic growth and higher inflation, concluded the press release.
Fibre2Fashion News Desk (SG)
