Hints of a recession in Europe's largest economy are becoming more evident after a significant deterioration in supply conditions, Germany's Bundesbank reported Monday.
Throttled energy shipments in particular, as a direct consequence of Russia's war in Ukraine, are leading to soaring prices and mounting uncertainty in Germany, affecting companies and households, the central bank said in a monthly report Monday.
While accumulated gas supplies will probably help to avoid formal energy rationing in the winter, economic output is likely to decline "somewhat" in the third quarter before a "noticeable" contraction in the following two, the Bundesbank said.
"There are increasing signs of a recession of the German economy in the sense of a clear, broad-based and longer-lasting decline in economic output," the central bank said.
Germany will probably be able to avoid the dire situation outlined in an adverse scenario in the institution's June projections, which foresaw an overall decline of 3.2% over the course of 2023, yet the outlook is still "extremely uncertain," according to the bank.
Inflation rates are also set to rise further in the coming months after certain government support measures to lower fuel and public-transport costs expired at the end of August. Headline inflation could even enter a double-digit range, the Bundesbank said.