FRANKFURT (Reuters) – The German economy is likely to have expanded in the last quarter on a rebound in industrial production, the Bundesbank said in a monthly report on Monday, revising its previous prediction of a small contraction.
The euro zone’s biggest economy has struggled for much of the past year as sky-high energy prices weighed on its vast industrial sector, but a modest rebound has been under way since gas prices fell back, boosting hopes that a recession can be avoided.
“The German economy did better in the first quarter of 2023 than expected a month ago and activity is likely to have picked up again somewhat,” the Bundesbank said. “Industry recovered more strongly than expected.”
The Bundesbank’s mild optimism is consistent with a recent string of survey data, which point to a mild recovery after a 0.4% contraction in the fourth quarter, even if growth could remain below trend for some time.
Falling gas prices supported energy intensive industries while supply bottlenecks continued to ease, car demand picked up and construction also got a boost, even if that was partly due to mild weather.
Industrial orders also surged recently, which may suggest that demand for manufactured goods has passed its cyclical bottom, the central bank said.
High employment should also keep supporting consumption, and unemployment is likely to fall slightly in the coming month, the bank added.
But the outlook is still mixed as inflation continues to weigh on consumption and the reversal in underlying price pressures has yet to work its way through to consumers.
Still, price growth is likely to keep easing and even if core inflation remains elevated for some time, services inflation should ease slowly, the Bundesbank added.
(Reporting by Balazs Koranyi; Editing by Kevin Liffey)
