The German economy is expected to grow modestly in the second quarter as a rebound in industry more than offsets stagnating household consumption and a slump in construction, the Bundesbank said in a monthly economy report on Wednesday.
Europe's biggest economy stagnated in the first quarter, barely escaping a recession after output dropped in the final three months of 2022 on the fallout of Russia's war in Ukraine and continued supply bottlenecks.
While a recovery has been underway for months now, it has been slow and choppy with industry suffering unexpected setbacks.
"Easing supply bottlenecks, the high backlog of orders and the fall in energy prices support the continued recovery in industry," the Bundesbank said. "This should also support exports, especially since the global economy has regained some momentum."
But private consumption is likely to stagnate as a quick rise in nominal incomes merely stops real wages from falling further, the bank added.
Inflation has eaten deep into purchasing power and the Bundesbank expects price growth to fall "only very gradually" in the coming months, as input costs remain high and wage growth continues to fuel price pressures.
The tight labour market could get even tighter, although the improvement is likely to be "rather small," the Bundesbank said.
Construction could take a hit as demand drops and the supportive effect of mild weather early in the year fades, the bank said.
