2024-07-31 05:32:18
A small increase was recorded by inflation in July in Germany, while forecasts for a slight recovery in the second quarter of the year were denied in the economy.
According to the data released today by the Federal Statistical Service, inflation in Germany is rising again, after months of continuous decline. In July, consumer prices were 2.3% higher than the same month last year. Inflation rose by 2.2% in June, after 2.4% in May.
According to the Federal Bureau of Statistics, inflation was driven mostly by services, where prices rose by an average of 3.9 percent, driven by increases in workers’ wages as many employers pass on higher wage costs to their customers. At the same time energy prices fell by 1.7% and food costs 1.35% more than in July 2023. However, so-called core inflation – which excludes changes in energy and food prices – remained at 2.9%.
The next few months
However, according to economist Sascha Merle from the Ifo Institute for Economic Research in Munich, inflation is likely to ease in the coming months because consumer-related sectors are estimated not to be planning to raise their prices. Of course, the ECB’s goal for inflation is to limit it below the 2% limit.
At the same time, German GDP contracted by 0.1% for the second quarter of this year, mainly due to a decrease in business investment in equipment, ie machinery and buildings. As a result, the German economy is lagging behind other major Eurozone states. “The unexpected 0.1% drop in GDP in the second quarter shows once again that there is no sign of a major recovery in Germany,” Gerg Kremer, chief economist at Commerzbank, told ARD. Experts polled by the Reuters news agency had previously expected a modest GDP increase of 0.1 percent – after 0.2 percent at the start of the year. As the main causes of the difficulty of the German economy to escape from prices close to zero, the difficulties due to the location of the country and the economic policy of the government are cited by economists. “The ever-decreasing backlog of orders in industry is no accident, it puts jobs at risk,” Alexander Krueger, chief economist at private bank Hauck Aufhäuser Lamp, also tells ARD and points out that, at the same time, China has lost its momentum as driver of growth in global markets, while the number of corporate bankruptcies at home is increasing. “The German economy is stuck in crisis,” said Ifo president Clemens Fust.
The mood among consumers seemed to change noticeably, especially during the four weeks of the European Football Championship which was organized in Germany in the months of June and July. Willingness to buy was noticeably higher than in March 2022, but it is not clear whether this is a sustainable change or a “short-term spike” fueled by “euro euphoria”, consumer researcher Rolf Bürkle said.
Recovery package
To stimulate the economy, the federal government recently approved a recovery package aimed at strengthening the country’s position, with investment incentives for businesses. The government estimates its measures will deliver about half a percentage point of extra growth next year, which translates to €26 billion.
The International Monetary Fund, for its part, remains pessimistic in its assessment of German GDP and predicts growth of just 0.2% this year.
Source: AMPE