BERLIN (Reuters) – There is no quick recovery in sight for the inflation-hit German economy following a winter recession, the DIW economic research institute said on Wednesday, as its monthly indicator declined sharply in May.
The figure for this month slumped to 91 points from 101.5 in April, falling below the 100 reading that signals a neutral underlying level of economic activity.
“The decline in economic output in the winter has been greater than expected and the recovery is also likely to be more timid than previously assumed,” says Timm Boenke, co-head of the economic team at DIW Berlin.
Stubbornly high inflation and interest rate hikes by the European Central Bank are dampening purchasing power and lending, said Geraldine Dany-Knedlik, co-head of DIW’s economic team.
While the economy has weathered the energy price crisis “surprisingly well so far,” a strong recovery is not in sight, added another DIW economic expert, Guido Baldi.
German industry had a strong first quarter, benefiting from the easing of supply chain constraints and a backlog in orders. However, incoming orders have recently declined, the experts said.
“Many companies are unsettled and are currently limiting themselves to maintaining their business activities at the current level rather than expanding them,” said DIW’s economic expert Laura Pagenhardt.
In the services sector, persistently strong price increases continue to massively reduce household purchasing power and inhibit consumption, clouding over the expectations of service providers, DIW experts said.
High employment levels are providing support, though wage increases have barely kept pace with inflation, the DIW added.
(Reporting by Maria Martinez, Editing by Friederike Heine and John Stonestreet)
