German economy will avoid recession in Q3, Bundesbank predicts

The Bundesbank said on Tuesday that it expects the German economy to avoid a technical recession and return to growth in the third quarter of 2024, according to the central bank's monthly report for August.

After contracting by 0.1% in the second quarter, following a 0.2% expansion in the first, German GDP could "increase slightly" in the three months ending 30 September, the Bundesbank predicted.

The central bank said that, just like activity in the services sector, consumer spending can be expected to rise over the current quarter.

"While it is true that consumer restraint appears to be more ingrained than had been assumed in the German forecast for June 2024, and the saving rate is still likely to go up in the third quarter, the favourable parameters established by significant price-adjusted increases in disposable incomes should increasingly feed through into rising household expenditure," the monthly report stated.

Nevertheless, the ongoing weakness in industrial activity, as well as in construction, is expected to persist as foreign demand remains weak amid a "difficult" competitive environment.

"All in all, economic output will probably expand only slightly. This will delay the anticipated gradual strengthening of the economy even further. On the other hand, the prospect of a recession – i.e. a sharp, broad-based and persistent decline in economic output – looks unlikely from the current standpoint, as long as no new negative shocks occur."