Germany's Economic Outlook Dims as Bundesbank Flags Q2 Risks

The Bundesbank, Germany's central bank, has issued a cautious outlook for the country's economy in its latest monthly report. Highlighting a slight increase in real gross domestic product (GDP) in the first quarter, the bank nonetheless warned of a potential setback in the second quarter. The underlying cyclical trend remains weak, with sluggish demand both domestically and internationally for German industrial products, alongside a labor market that shows signs of weakening.

Temporary Industrial Recovery and Trade Uncertainties

Industrial output saw a modest rebound in the first quarter, but the Bundesbank suggests this recovery may be short-lived. A surge in exports to the United States, prompted by anticipations of tariff announcements, provided a temporary boost. However, the tariffs implemented in April could "lead to corresponding setbacks in the second quarter," further complicating the economic landscape.

Inflation Forecast: A Mixed Picture

With energy prices on the decline and the euro gaining strength against the dollar, inflation is expected to ease in the near term. Yet, the Bundesbank cautions that the inflation outlook is "characterised by particular uncertainty," underscoring the unpredictable nature of current economic conditions.