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The German Central Bank expects a contraction in the country’s economy

The German Central Bank (Bundesbank) predicted that the economy will contract next year due to high energy costs. Inflation forecasts were also revised upwards.

Updating its economic forecasts, the Bundesbank predicted that the economy will contract by 0.5 percent in 2023. The previous forecast was for 2.4 percent growth.

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The growth forecast for 2024 was reduced from 1.8 percent to 1.7 percent. This year’s growth forecast also decreased from 1.9 percent to 1.8 percent.

Inflation forecasts for 2023 and 2024 were revised upwards. While the 2022 forecast increased from 7.1 percent to 8.6 percent, the 2023 forecast increased from 4.5 percent to 7.2 percent, and the 2024 forecast increased from 2.6 percent to 4.1 percent.

It was stated that the war between Russia and Ukraine put great pressure on the German economy. Bundesbank President Joachim Nagel stated that the economic activity will shrink and they expect a gradual recovery from the second half of 2023 and said, “We expect the production capacity to return to normal in 2025. However, there is still high uncertainty on the forecasts.”

Nagel said that inflation will remain above 2 percent by 2025 and that the European Central Bank should continue to intervene effectively.

 

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The European Central Bank increased the interest rate by 50 basis points to 2 percent yesterday, and President Christine Lagarde gave the message that the rate hikes would continue next year.

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