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Signs are mounting that the German economy is slipping into recession, which will deepen as we head into the winter months amid the ongoing natural gas and energy crisis, Bundesbank, the central bank of Germany, said in its monthly report on Monday.
Economists at Bundesbank now expect a broad-based and longer-lasting decline in German economic activity.
Germany's real gross domestic product (GDP) is expected to shrink somewhat in the third quarter and decline significantly in the next quarter and winter months, Bundesbank said.
The gas supply situation will continue to be very tight, the central bank said.
Early this month, Russia indefinitely shut down Nord Stream, the key gas export route to Germany, and blamed Western sanctions for this situation.
According to Bundesbank, mandatory rationing of gas could be avoided—barely—thanks to high volumes of deliveries of gas from other sources.
"However, this requires a further, significant reduction in gas consumption - especially in households," Germany's central bank said.
The high energy prices have hit energy-intensive sectors, with output in the chemicals industry sharply down. Consumer goods manufacturing has also slumped, especially pharmaceuticals and furniture. Industrial order intake continued to decline in July due to falling domestic demand, Bundesbank noted.
Germany's inflation rate is expected to move up into the double digits over the next few months, the bank said.
If the weather is cold, gas shortages would be even worse. Germany could see severe nationwide gas shortages, which it will not be able to predict more than two weeks in advance, Klaus Müller, the president of Germany's Federal Network Agency, Bundesnetzagentur, said last week.
Meanwhile, the German government is in talks with the biggest German importer of natural gas, Uniper, to potentially lift its 30% stake in the company to majority participation or to nationalize the firm.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.