By Ed Frankl and Hans Bentzien
Germany sidestepped a potential recession in the first quarter of the year, driven by a slight rebound in its key industrial sector, although the outlook is still gloomy, the country's central bank said.
"The economy in Germany has brightened somewhat, but a thorough recovery is not yet assured," the Bundesbank said Thursday in a monthly report.
Industrial production and increased goods exports, a key factor in Germany's manufacturing-driven economy, helped the economy to a likely uptick in the first three months of 2024, as did milder weather in February, which helped construction to recover.
Nevertheless, industrial production remains subdued in many parts of the economy, the bank said.
"Demand for German industrial products from home and abroad remains weak and trends show a continued decline," it said.
Moreover, high interest rates and political uncertainty are damping investment activity in Europe's largest economy.
"There is still no evidence of sustained improvement for the German economy," it said, adding that it wasn't yet clear that any increase in economic output would continue in the second quarter.
The German economy shrank by 0.3% in the fourth quarter, and 0.1% in 2023 as a whole, with the country's government expecting anemic growth of just 0.2% this year. A second consecutive quarter of declining output would have meant Germany sank into a technical recession.
Still, inflation is set to fall in April from 2.2% in March, which should help real incomes, though that level will rise again in May to around 3%, the bank said. That is in part down to a discounted nationwide rail ticket that damped the level of prices last year, the Bundesbank said. Middle East tensions are also likely to have driven oil prices up, it said.
Write to Hans Bentzien at hans.bentzien@wsj.com and Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
04-18-24 0758ET
