MercoPress. South Atlantic News Agency

German recession forecasted to begin in the last quarter, Bundesbank report

“The signs of a recession of the German economy are multiplying,” reads the monthly report from the country's central bank, Bundesbank, adding “a slump that could last into next year”.

The Bundesbank pointed to an “unfavorable developments in the gas market” after Russia shut down the North Stream gas pipelines earlier this month.

Germany is trying to reduce its reliance on Russian energy imports. Prior to the invasion of Ukraine, Russia accounted for 55% of Germany's gas supply. That number has been drastically reduced, and German industry has warned shortages could lead to production problems.

Although rationing could be avoided, the Bundesbank said, companies will nevertheless be forced to reduce or halt production.

“Therefore, the economists believe that the probability of GDP declining in the approaching fourth quarter of 2022 and the first quarter of 2023 has increased considerably,” the Bundesbank said.

In the second quarter, the German economy managed to grow 0.1%. But the Bundesbank's economists predict a slight contraction this (third) quarter, with a more “marked” decline in economic output expected to follow in the last three months of the year and into 2023.

The Bundesbank's forecast of a recession matches recent analyses from leading German economic research institutes including the Munich-based Ifo Institute for Economic Research and the Kiel Institute for the World Economy.

The Bundesbank also warned that inflation could reach into double digits in the coming months as prices of services and energy continue to increase. In August, Germany's year-on-year inflation rate was nearly 8%, and with a growing tendency.