Germany's economy is on a recovery path, but the Bundesbank warned in its monthly report that expansion in the first quarter will be limited and momentum is likely to pick up only from spring onward. The central bank highlighted several factors that underlie its cautiously optimistic outlook.
"The economy is expected to continue its recovery in the first quarter, albeit with weak momentum," the Bundesbank said. It added that - "From spring onwards, the German economy is expected to grow more dynamically, driven primarily by fiscal stimulus." The bank pointed to a combination of higher government spending, a resilient labour market and accumulated household savings as elements that support a rebound after a prolonged period of stagnation.
Germany has been effectively flat for the past three years, the report noted, but recent fiscal measures are expected to provide a stronger growth impulse later in the year. The Bundesbank's prior projection anticipated overall growth below 1% for the year, with most of that activity concentrated in the second half.
Among near-term drags, construction is likely to be hit by poor weather during the first quarter, the report said, reducing activity in a sector that often contributes to domestic growth. Likewise, private consumption is described as unlikely to remain at its recent elevated level, suggesting household spending may temper the pace of the recovery in early months.
The industrial sector presents a mixed picture. While some large orders have been recorded, the Bundesbank warned these are probably linked to increased government expenditure on defence and infrastructure rather than a broad-based improvement in export competitiveness. Overall, the sector's standing on world markets remains relatively weak, leaving industry vulnerable if external demand does not strengthen.
The Bundesbank's assessment frames a growth pattern where policy-driven demand and solid labour market conditions lift activity later in the year, even as near-term headwinds constrain the first quarter. Observers and market participants will watch whether the spring pickup materialises and if government spending translates into sustained private-sector momentum.
Related sectors impacted: construction, consumer-facing services and retail, manufacturing and exports, public-sector procurement and defence-related industries.