Bundesbank Sees German Economy Stagnating in Fourth Quarter

(Bloomberg) --

Germany’s economy will probably stagnate in the fourth quarter, the Bundesbank predicted, signaling that while the nation has averted a recession, there’s little sign of a rebound any time soon.

There are cautious signs the country’s manufacturing slump could be easing, according to the central bank’s monthly report. Domestic demand should also continue to provide support, even as the “significant downturn” starts to impact the still-robust labor market.

“The weak phase of the German economy is expected to extend into the final quarter of the year,” the Bundesbank said Monday. “But it will probably not worsen significantly. From today’s perspective, total output could just about stagnate.”

Europe’s largest economy reported a surprise expansion in the third quarter, dodging what would have been its first recession in six years. That doesn’t change the fact that the country is going through a torrid period sparked by global trade tensions and geopolitical uncertainty that’s turned it from the euro area’s traditional growth engine into a source of weakness.

The Bundesbank highlighted some promising signs of stabilization: Manufacturers’ business expectations have improved and order inflows have been constant in the previous months, helping rein in spillovers from export-reliant industries to domestic demand.

Private consumption should continue to bolster economic growth in the fourth quarter thanks to a strong labor market and rising wages, while expansionary fiscal policy should also provide a boost.

“For the most part, the economy probably trod water in the second half of the year,” the Bundesbank said. “There’s currently no reason to fear Germany will slide into a recession.”

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

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