FRANKFURT, Sept 19 (Askume) – The German economy is likely to shrink again this quarter due to a deep industrial slowdown, weak investment and extreme consumer caution, the Bundesbank said in its monthly economic report on Thursday.
The euro zone’s largest economy has posted negative growth in two of the past three quarters, putting pressure on the entire region as its huge industrial sector faces weak export demand and high energy costs.
“The economy either stagnated or declined again in the third quarter,” the central bank said. “However, a recession involving a large, widespread and prolonged decline in economic output cannot yet be expected.”
The central bank said private consumption is likely to remain slow for the time being, confusing some economists because real wages are rising and households have ample savings.
The increase in purchasing power should be reflected in private consumption, but the Bundesbank expects consumer spending to be subdued.
Despite some tentative signs of improvement in new overseas orders, the industrial production outlook is also likely to weaken this quarter as short-term production plans and export expectations deteriorate.
However, the labour market will continue to support the economy.
The overall employment rate remains high, wages are rising, and the labor market outlook is stable.
But the Bundesbank also sees some worrying signs in the labor market.
The weak economic recovery is weakening corporate employment plans in some industries and manufacturing to prevent mass layoffs through greater use of social insurance programs that allow employers to reduce working hours rather than lay off workers.
