German economic output is likely to have gone up slightly again in the second quarter of 2023, according to the Monthly Report. Private consumption appears to have stabilised after previously having fallen. According to the experts, the fact that the labour market remained in good shape, wages rose sharply and price inflation did not continue to accelerate contributed to this development. The services sectors are also likely to have benefited from this. 

Industry and construction output did not see any quarter-on-quarter expansion despite benefiting from subsiding delivery bottlenecks and a large backlog of orders. Higher funding costs dampened domestic demand in both sectors. In addition, declining foreign demand was a drag on industry. According to ifo Institute surveys, sentiment among businesses deteriorated significantly in June. The experts therefore conclude that [t]he economic recovery could therefore end up being somewhat more restrained over the course of the year than expected in the June projection.

Private consumption stabilised

Private consumption is likely to have stabilised in the second quarter, the Bundesbank writes. The GfK consumer climate indicator, which reflects the consumer sentiment of households in Germany, improved. Income expectations, in particular, rose significantly. In the retail sector, price-adjusted sales rose once again in May. Moreover, according to the Monthly Report, households appear to have spent considerably more on travel again, while car purchases declined significantly. Service providers also benefited from the improved consumer climate: their output rose markedly in April on the quarter, and their business situation also improved significantly in the second quarter, according to ifo Institute surveys.

Labour market remains robust

Despite weak economic activity, the labour market has remained stable. However, the remarkable increase in employment in the preceding months came to a halt in May, the experts write. In most sectors, the number of positions filled stagnated. In trade and temporary employment, both of which suffered under households’ consumer restraint, fewer people had jobs subject to social security contributions. The ifo employment barometer  remained largely at the previous month’s subdued level in June, while the corresponding leading indicator of the Institute for Employment Research (IAB) declined. Therefore, the Bundesbank’s experts do not believe an increase in employment is on the cards in the coming months.

After seasonal adjustment, registered unemployment rose in June by a significant 28,000 to 2.61 million, with the unemployment rate rising by 0.1 percentage point to 5.7%. With the economic recovery progressing only slowly and the discontinuation of labour market policy measures and integration courses, the experts see unemployment as being set to rise further.

Inflation rate higher again due to one-off effect

In June, the Harmonised Index of Consumer Prices (HICP) rose by 0.5% on the month in seasonally adjusted terms, which was not much below the pace recorded in most previous months. Although, according to the Monthly Report, energy prices remained virtually unchanged and food prices increased less strongly, as had been the case in the preceding month, the prices of non-energy industrial goods and services continued to display above-average growth. 

Annual HICP inflation rose distinctly from 6.3% to 6.8%; however, the experts attributed this to a one-off effect caused by the temporary introduction of the “fuel rebate” and the “€9 ticket” in June 2022. Beginning in September, one-off effects are likely to have an arithmetically dampening effect and therefore push the inflation rate in Germany back down. In addition, the Bundesbank expects the latest reductions in the prices of intermediate input products to be gradually passed through to consumers. By contrast, the core rate excluding energy and food is likely to remain very high over the summer months, especially as package holidays have a much higher weight again since the coronavirus pandemic and their prices are likely to peak in the summer as usual.