Germany on track for recession, high inflation in 2023, says central bank

The Bundesbank said "unfavorable developments in the gas market" would put pressure on German manufacturers, with signs of an impending recession becoming hard to ignore.

Germany's economy — the largest in Europe — is heading for an slump that could last into next year, the country's central bank, the Bundesbank, said on Monday in a monthly report. 

"The signs of a recession for the German economy are multiplying," the report said. 

Gas woes to blame

The central bank pointed to "unfavorable developments in the gas market" after Russia shut down the Nord Stream gas pipeline earlier in September.

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 is being reduced, but 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.

Worst yet to come

Last quarter, the German economy managed to grow 0.1%.

However, the Bundesbank's economists predict a slight contraction this 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 central bank also warned that inflation could reach into the 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%. 

Source: Deutsche Welle