German economy treading water, Bundesbank reports

Germany's central bank (Bundesbank) announced on Thursday that the German economy will not make any significant gains in the current quarter.

"Economic output could stagnate in the third quarter," the bank wrote in its August monthly report.

However, its assessment is somewhat more optimistic than it was at the beginning of June. For the year as a whole, the Bundesbank now believes that a slight increase in gross domestic product (GDP) is possible instead of stagnation.

This would mean that Europe's largest economy would narrowly avoid a third year without growth.

Revised figures from the Federal Statistical Office show the German economy grew slightly in the final quarter of 2024 instead of shrinking. This means that the current year has an "improved starting position," according to economists at the Bundesbank.

The unexpectedly favourable development of sentiment indicators also points to a slightly better assessment for the third quarter, they say.

Nevertheless, even after the agreement in principle in the trade dispute between the US and the European Union, uncertainty remains high in view of unresolved issues and the volatile US economic policy.

Overall, the Bundesbank does not expect any growth impetus from domestic industry in the third quarter. No strong boost is expected from the construction industry either, although there are signs of a recovery in new orders. The subdued outlook on the labour market is also dampening private consumption.

In the second quarter, economic growth in Germany contracted by 0.1% compared with the previous quarter, according to preliminary calculations by the Federal Statistical Office.

The authority will provide more detailed information on economic developments in the spring on Friday.