Despite the Russian invasion of Ukraine, optimism has returned to the German economy. The latest GDP growth data reflects stronger sentiment indicators and a pick-up in activity since the beginning of the year. While the cycle has started to turn for the better, the economy has not yet fully recovered to its early 2022 level.
Looking forward, strong wage growth is expected to support a cautious recovery in private consumption, with potential for a positive shift in the inventory cycle. However, there are still cyclical factors that could hinder economic activity, such as higher oil prices due to ongoing military conflicts in the Middle East. These could impact industry and exports.
Additionally, rising insolvencies and job restructurings by individual companies pose a risk to the labor market this year. Furthermore, Germany’s structural weaknesses will continue to impede a rapid rebound in the economy. Overall, it is projected that the German economy will grow by around 0.3% this year, but challenges still remain on the horizon.
