Germany Avoids Recession at Start of Year: Central Bank

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Germany’s sluggish economy may expand slightly at the start of the year, avoiding a recession, thanks to improved manufacturing and exports, the country’s central bank said on Thursday.

But the Bundesbank warned that “a major recovery is still not guaranteed” in Europe’s biggest economy, which has been hit by inflation, a slowdown in its manufacturing sector and weak demand from abroad.

Output fell by the end of 2023 and the central bank had previously forecast a second straight quarter of cuts, which would lead to a technical recession.

But, in its monthly report, the bank said the picture was now “somewhat brighter”.

“Real domestic income is likely to increase slightly in the first quarter,” said the Bundesbank.

The report attributed this in part to increased industrial output. “Exceptionally strong” performance in the construction sector due to mild weather has also provided support, it said.

An improvement in exports, which jumped more than expected in January, also provided a boost, it said.

But it warned that industrial production remained weak in many sectors, demand for German exports remained tight and consumer spending was slowing.

“Overall, there is still no sign of improvement in the German economy,” it said.

Preliminary first quarter growth data will be released on April 30.

After its major manufacturers were hit by rising energy prices when Russia invaded Ukraine in 2022, Germany has struggled to revive the economy amid a host of other challenges.

These range from short-term problems, such as problems at a major transportation hub in China, to deeper structural problems such as an aging population and a shortage of skilled workers.

The economy shrank by 0.3 percent last year, and the recovery is expected to be slower than expected.

The International Monetary Fund this week cut its growth forecast for the country, predicting that it will only manage a weak recovery of 0.2 percent this year, due to weak consumer sentiment.

The German government also cut its forecast in February and saw output expand by the same figure.

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