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Bundesbank warns of first-quarter contraction in German economy

Published 20/03/2023, 12:18
Updated 20/03/2023, 12:18
© Reuters.

© Reuters.

By Scott Kanowsky 

Investing.com -- The German economy is anticipated to shrink in the first quarter of 2023, the country's central bank, the Bundesbank, said in a monthly report on Monday.

It flagged that while consumer sentiment and business expectations brightened slightly at the beginning of 2023, they remain at relatively low levels.

"All in all, German economic activity will probably fall again in the current quarter," the Bundesbank said.

Although the decline is projected to be smaller than in the last three months of 2022, when Europe's largest economy contracted by 0.4% on a quarterly basis, two consecutive quarters of falling economic activity would signal that Germany has entered into a so-called "technical recession."

Despite the broader economic headwinds, the Bundesbank noted "positive" developments in the national labor market, adding that they expect unemployment to edge down in the coming months.

Inflation in Germany is also seen decelerating "significantly" in March, with the Bundesbank highlighting that growth in energy prices, which had surged in the wake of the outbreak of the war in Ukraine, was almost at a "standstill."

Elsewhere on Monday, a spokesperson for German chancellor Olaf Scholz brushed off concerns that recent market turmoil sparked by failing banks was reminiscent of the 2008 financial crisis. Germany's banking system, the spokesperson also said, was "well positioned" in the wake of the takeover of Credit Suisse (SIX:CSGN) by larger rival UBS (SIX:UBSG).

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