(Bloomberg) – The Bundesbank said hints of a recession in Europe’s largest economy are becoming more visible after a significant deterioration in supply conditions.
The stifling energy shipments in particular as a direct result of the Russian war in Ukraine are driving up prices and heightening uncertainty in Germany affecting businesses and households, the central bank said in a monthly report on Monday.
While the backlog of gas supplies will likely help avoid official energy rationing in the winter, economic production is likely to decline “fairly” in the third quarter before a “significant” contraction in the next two years, the Bundesbank said.
“There are increasing signs that the German economy is stagnating in terms of a clear, widespread and long-term decline in economic output,” she said.
It is possible that the country will be able to avoid the tragic situation outlined in the opposite scenario in the institution’s forecast for June, which forecast an overall decline of 3.2% over 2023, yet the forecast remains “highly uncertain.”
Inflation is also set to rise further in the coming months after certain government support measures to cut fuel and public transport costs expire at the end of August. The Bundesbank said headline inflation could be in a double-digit range.
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