Bundesbank Expects German Economy To Pick Up Gradually

Germany's economy is set to fall again in the first quarter of this year but there would be a gradual pick up going forward, Bundesbank said in its monthly report on Monday.

The central bank said economic output is set to fall again in the first quarter. However, a gas shortage is no longer expected and the electricity and gas price brakes are reducing energy costs.

As tension on the energy markets eased significantly both corporate investment and industrial production would benefit from this. "Things could slowly pick up again as the year progresses," the bank said. "A significant improvement is not yet in sight."

Official data released last month showed that the largest euro area economy logged a quarterly contraction of 0.2 percent, reversing the 0.5 percent expansion in the third quarter. Another fall in the first quarter of 2023 will push the economy into a technical recession.

Although inflation is likely to fall noticeably in the coming months, the underlying price pressure will probably weaken only slowly from its high level, the central bank said.

Underpinned by government subsidies on energy bills, Germany's harmonized inflation eased to 9.2 percent in January from 9.6 percent in December. Likewise, Eurozone inflation slowed to an eight-month low of 8.5 percent in January from 9.2 percent a month ago.