Germany may grow twice as fast this year as earlier thought, Bundesbank says

Frankfurt: German economic growth may accelerate around 1 percent this year, more than double the previous forecasts, according to Bundesbank President Joachim Nagel. The robust export demand and government investment are key factors behind this growth, he stated on Friday. After three years of stagnation, Germany could see a slight economic upswing, though its potential growth remains modest, Nagel said during a speech in Frankfurt.

"This would be a small but welcome sign after three years of stagnation," he added. The Bundesbank had initially predicted a growth rate of 0.5 percent in June. The federal government's fiscal package, including debt-financed spending on defense, infrastructure, and climate protection, is a significant driver of this growth. Another major factor is the unexpectedly strong demand from abroad.

This strong performance is contributing to the euro zone's expansion being upgraded to meet or exceed its 1 percent growth potential for the year. However, the resilience in growth could lead to increased inflation, with the European Central Bank potentially raising interest rates further. Germany's inflation surged to 3.3 percent year-on-year in September, the highest level since December 2023, largely due to the energy price surge from the Iran war.

Additionally, seasonally adjusted unemployment rose back above 3 million, highlighting the challenges still faced by Europe's largest economy following a stronger-than-expected first half of the year.