Bundesbank Says German Economy to Slow But Stay on ‘Sound’ Path

(Bloomberg) -- Germany’s economy is likely to cool in coming months even if trade tensions are contained, according to the country’s central bank.

The Bundesbank said in its monthly report that third-quarter growth “could end up being somewhat slower than the average for the first half of the year” on the back of weaker factory orders and as automakers grapple with a new emissions-testing cycle. Even so, private consumption and a strong labor market should keep the nation on a “sound growth path.”

Trade conflicts haven’t been the main driver of declining manufacturing sentiment globally, the Bundesbank said, noting that gauges of activity in the countries most likely to be affected by restrictive measures have changed only slightly.

“Nonetheless, an escalation of these disputes could place a considerable strain on global economic growth,” it added.

Germany’s position as the euro area’s biggest economy means its growth outlook will influence when the European Central Bank can start to raise interest rates after years of stimulus. The ECB plans to end its bond-buying program in December and keep borrowing costs on hold at least through the summer of 2019.

Bundesbank President Jens Weidmann told German newspaper Frankfurter Allgemeine Sonntagszeitung at the weekend that a normalization of monetary policy is “foreseeable” now that policy makers have shifted gears.

©2018 Bloomberg L.P.