Germany faces slower growth and new spike in inflation, Bundesbank says

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FILE PHOTO: Cologne's shopping street during the coronavirus pandemic

FRANKFURT – The German economy is likely to have grown less than expected this quarter and may face a new spike in inflation in September as government subsidies expire, the Bundesbank said on Friday.

Europe’s industrial powerhouse is struggling with surging energy bills as Russia cuts its gas supply in retaliation for sanctions over its invasion of Ukraine.

“This is marring the outlook too,” the Bundesbank said in its monthly report, adding growth in the third quarter may well come in short of its June projection, which is not public.

Its forecast for the whole of 2022 was for an increase of 1.9% in GDP.

The German central bank expected inflation, which hit 8.2% in June, to stay high in coming months and even spike in September, once government subsidies on fuel and rail tickets expire on Aug. 31.

“The future development of the energy market is very uncertain, especially with regard to natural gas deliveries

Russia,” the Bundesbank said. “The risks for the price outlook are clearly pointing upwards.”

The ECB raised its interest rates for the first time in 11 years on Thursday to combat record-high inflation.

(Reporting By Francesco Canepa; Editing by Clarence Fernandez)