German Economy Stagnates as Energy Costs Rise, Inflation Climbs
(MENAFN) Germany's economy likely remained stagnant in the third quarter as elevated energy costs put pressure on household spending, while annual inflation rose in September to its highest level since late 2023, the Bundesbank said Wednesday.
In its October report, the central bank said the pause in economic recovery was partly driven by temporary factors, including unusually low water levels along the Rhine River and the effects of fuel-tax relief measures.
High energy prices continued to erode consumers' purchasing power, while difficulties in the automotive industry contributed to a decline in industrial production in August. The concentration of factory holiday closures during the same month also affected output.
Reduced water levels along the Rhine disrupted shipping operations and increased transportation expenses for energy-intensive sectors, particularly oil refining and chemicals. These challenges also placed additional pressure on Germany's foreign trade.
Construction activity recorded an increase in August, but the Bundesbank warned that higher mortgage rates were likely to limit further growth in the sector.
Annual harmonized inflation rose to 3.3% in September, up from 2.9% in August, as the conflict in the Middle East pushed energy prices higher.
The central bank expects inflationary pressures to persist, with increased energy expenses gradually affecting the prices of manufactured goods, food and services.
Further upward pressure is expected from the expiration of fuel-tax relief measures and a healthcare reform scheduled for early 2027. The reform will increase patients' out-of-pocket payments for medicines and hospital services.
In its October report, the central bank said the pause in economic recovery was partly driven by temporary factors, including unusually low water levels along the Rhine River and the effects of fuel-tax relief measures.
High energy prices continued to erode consumers' purchasing power, while difficulties in the automotive industry contributed to a decline in industrial production in August. The concentration of factory holiday closures during the same month also affected output.
Reduced water levels along the Rhine disrupted shipping operations and increased transportation expenses for energy-intensive sectors, particularly oil refining and chemicals. These challenges also placed additional pressure on Germany's foreign trade.
Construction activity recorded an increase in August, but the Bundesbank warned that higher mortgage rates were likely to limit further growth in the sector.
Annual harmonized inflation rose to 3.3% in September, up from 2.9% in August, as the conflict in the Middle East pushed energy prices higher.
The central bank expects inflationary pressures to persist, with increased energy expenses gradually affecting the prices of manufactured goods, food and services.
Further upward pressure is expected from the expiration of fuel-tax relief measures and a healthcare reform scheduled for early 2027. The reform will increase patients' out-of-pocket payments for medicines and hospital services.
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