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Industry-heavy Germany is bearing the brunt of a drop in global
demand for goods - the result of higher borrowing costs
dampening investment and people spending more on leisure, travel
and other services in the aftermath of the pandemic.
The Bundesbank said Europe's largest economy was likely to have
grown slightly in the three months to June after contracting in
the previous two quarters, thanks to a stabilisation in consumer
spending.
But the outlook was more bleak than the central bank's own
estimate for a 0.3% contraction this year, which was published
less than a month ago, due to worsening sentiment.
"The economic recovery in the remainder of the year could
therefore turn out to be somewhat more timid than expected in
the June forecasts," the Bundesbank said.
It cited a survey from the Ifo institute showing that German
business morale worsened for the second consecutive month in
June, particularly in the industrial sector.
The Bundesbank expected inflation - the No.1 concern for it and
the European Central Bank at present - to fall further in the
coming months as lower producer prices are passed down the
supply chain.
Core inflation, which excludes energy and food costs, should
remain high, however, also thanks to a boom in packaged
holidays, which now have a greater weight in the inflation
index.
(Reporting By Francesco Canepa; Editing by Angus MacSwan)
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