CashNews.co
By Maria Martinez
BERLIN (Reuters) -Germany’s gross domestic product unexpectedly increased in the third quarter, skirting a recession, but inflation rose more than expected in October, interrupting the downward trend in Europe’s troubled largest economy.
“This is still far from what we need, but at least it is a ray of hope,” Economy Minister Robert Habeck said. “The economy is proving more robust than previously forecast and the technical recession expected by many has failed to materialise.”
The economy expanded by 0.2% in the third quarter from the previous three months, driven by government and household spending, preliminary data from the federal statistics office showed on Wednesday.
Inflation, however, resurged to 2.4%, against a forecast by analysts polled by Reuters of 2.1% this month, after a year-on-year rise in consumer prices of 1.8% in September, based on data harmonised to compare with other European Union countries.
“The just-released flash estimate of German inflation in October could make some members of the European Central Bank regret the latest rate cut and the European Central Bank’s new openness to more aggressive cuts,” said Carsten Brzeski, global head of macro at ING.
Core inflation, which excludes volatile items like food and energy prices, was at 2.9% in October up from 2.7% in the previous month.
“The renewed rise in core inflation shows once again that the inflation problem has not yet been fully resolved and that patience is still required,” said Sebastian Becker, economist at Deutsche Bank Research.
In the short term, the signs point to higher inflation for the time being, economists said.
“Nevertheless, the current weakening of the labour market suggests that the core rate is likely to fall again – albeit slowly – over the course of 2025,” Becker said.
“If the inflation rate were to level off at just under 2%, everything would be in the green zone, said Friedrich Heinemann, economist at ZEW, but he added that this was not certain with a view to 2025.
“If there is a new escalating trade conflict with a U.S. President Trump, the German economy will also feel the effects through higher import prices,” Heinemann said.
Germany would be the big loser if a Trump presidency sparked a tit-for-tat trade war between the United States and Europe.
SIGN OF LIFE
“Under the weight of many structural weaknesses, the economy is sending out a sign of life,” Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe, said of the new data. “This is thanks to consumers, who have let their guard down a little.”