Germany’s economy performed better than expected in the fourth quarter of last year and “more or less” stagnated, according to the Bundesbank, confirming an earlier estimate that fed optimism over the eurozone dodging a winter recession.
“High inflation and uncertainty in view of the war in Ukraine weighed on the economy in the fall quarter, but the situation on energy markets eased noticeably compared to the summer,” the Bundesbank said in its monthly report.
“Moreover, further fiscal measures were taken, some of which relieve private households and companies of high energy costs. Supply bottlenecks in industry and construction also became less relevant,” the Bundesbank said on Monday.
Photo: EPA-EFE
Improving confidence has fueled hope that a downturn in Europe’s biggest economy, which seemed inevitable just weeks ago, may be shallow or may not happen at all.
The statistics office reported on Jan. 13 that a contraction may have been avoided in the final quarter of last year.
The Bundesbank predicts a “slightly positive” employment trend in the coming months. That should underpin consumption, even as price pressures remain strong.
A slowdown in inflation to 9.6 percent last month was mainly due to one-off fiscal relief, the Bundesbank said. “It should therefore be temporary.”
While gas and electricity price caps will be reflected in official price statistics from this month, “these should dampen the inflation rate less than the emergency aid in December.”
Last month, the central bank predicted German inflation would average 7.2 percent this year and 4.1 percent next year.
Since then, Bundesbank President Joachim Nagel has argued that additional measures are needed to curb rising expectations of future prices and return euro-area inflation to the 2 percent goal.
“The fight against inflation must therefore be given top priority in order to ensure that the credibility of monetary policy is maintained,” the Bundesbank said. “Otherwise, the uncertainty of market participants about the development of inflation threatens to translate into an unanchoring of inflation expectations in the medium and long term.”
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