The Bundesbank considers a recession in Germany increasingly likely

According to the monthly report of the German central bank Bundesbank, a recession in the country is becoming an increasingly likely scenario for the largest economy in the eurozone, and inflation will continue to accelerate and may peak above 10% this fall.

Analysts note that the German industry is heavily dependent on Russian gas supplies, which makes it the most vulnerable link in the event of a supply interruption. Rapidly rising energy prices are already putting a lot of pressure on this industry sector, and there is no reason to expect an improvement in the situation.

The Central Bank also said that a reduction in GDP in the winter months is becoming more likely, and high uncertainty about gas supplies in the coming winter and a sharp rise in prices will greatly affect the situation of households and companies.

Gas shortages and high prices have already forced Germany to reduce gas consumption, and many industries (from metallurgy to fertilizer production) have suffered greatly from this.

At the same time, energy costs are accelerating inflation, which is likely to peak no earlier than autumn. It is expected that this maximum will be about five times higher than the ECB's target level of 2% – about 10%. And the probability of this will increase dramatically in the event of a complete cessation of gas supplies from Russia.

In turn, rising inflation creates the risk of a rapid increase in wages, especially against the background of record low unemployment, which could lead to an inflationary spiral. Recall that in July, the ECB raised interest rates from record lows to combat inflationary pressures. The markets have no doubts about further rate increases, as the prospects for further price growth remain high.