Germany's Bundesbank expects recession in winter half-year

The Bundesbank, Germany's central bank, expects an economic slump in the country and persistently high inflation in the coming months.

Despite surprising economic growth in the summer quarter, a recession is still to be expected in the winter half-year, the central bank wrote in its monthly report published on Wednesday.

"Inflation could remain in double digits beyond the turn of the year," according to the report.

State relief for citizens' high gas bills in December will relieve the burden on consumers, it said. However, it was still unclear to what extent it will be reflected in official price calculations and thus in the inflation rate.

The annual rate of inflation climbed to 10.4% in Germany in October.

The Bundesbank now sees an increased risk of knock-on effects: If inflation leads to higher wage agreements and thus wage costs, this could fuel inflation. Wages and prices could build up, entrenching inflation.

The Bundesbank noted that recent wage settlements have been increasingly strong. In addition, trade unions are demanding what it called "extraordinarily high wage increases" in the face of inflation.

The trade union Verdi, for example, is demanding 10.5% more money for public sector workers in the federal and in local governments for a period of 12 months.

It is not to be expected that these demands will lead to actual wage agreements of the same magnitude, the central bank wrote, but "the risk of knock-on effects has increased."

According to economists, economic growth in Germany is being held back by uncertainty about energy supply and higher energy prices, among other things.