The growth of the German economy is slowing at the end of the year due to bottlenecks in the industry and the sharp increase in the numbers of coronavirus contagion in the country, reported the Bundesbank.
The German central bank also reported that inflation could rise to just under 6% in November in the country.
“The economic recovery is expected to take a breather for the time being,” wrote the German central bank in its monthly report, which estimates that the Gross Domestic Product (GDP) could remain unchanged.
In the European summer, the economic output of the largest European economy increased by 1.8% compared to the second quarter, according to preliminary data from the Federal Statistical Office.
The growth was mainly due to consumer spending.
However, the Bundesbank believes that the momentum that emanated from the services sector following the end of many restrictions due to the coronavirus pandemic (COVID-19) has probably run its course for now.
In addition, some measures have now been tightened again to try to contain the new increase in infection figures.
At the same time, the industry is likely to continue to experience supply chain bottlenecks in the fourth quarter, thus slowing overall economic growth.
According to the central bank, the positive growth momentum will come from the construction industry.
In general, the Bundesbank sees risks associated with the worsening of the pandemic during the European winter semester, but considers that “as things currently stand, the macroeconomic effects are likely to be less severe than in previous pandemic waves.”
In October, the harmonized index of consumer prices (HICP), which the European Central Bank (ECB) uses for its monetary policy, had risen to 4.6% in Germany.
This month, the Bundesbank believes that the rate “could even approach 6%.”
The bank attributes part of the increase to special effects such as the temporary reduction of the Value Added Tax (VAT) in Germany from mid-2020 due to the pandemic, a measure that was lifted at the beginning of this year, in which the old tax rates.
The temporary VAT reduction will cease to take effect as of January 2022. “Then, the inflation rate should drop significantly, although it is to be assumed that the strong increase in natural gas market prices will only be passed on to consumers in mostly after the turn of the year, ”the central bank wrote.
Experts expect the inflation rate to gradually decrease in the coming months of next year.
“However, it could stay well above 3% for some time.”
In this context, the central bank criticized the plans of the possible new federal government to raise the minimum wage to 12 euros per hour by the end of 2022. This would have “non-negligible indirect effects” on the higher salary groups, explained the Bundesbank.