Germany's central bank says the domestic economy may grow only slightly this quarter at best, as low river levels disrupt shipping and higher borrowing costs weigh on investment. The Bundesbank still says the ECB will likely raise rates again in September, even as it plays down near-term inflation risks.
The Bundesbank said in its latest report that the German economy may grow only slightly this quarter at best. Poor weather has hampered the recovery, and the central bank flagged transport bottlenecks as a drag on output.
Low water levels squeeze exports
Months of dry weather have left the Rhine and other German rivers with shallow water, and vessels have been unable to sail fully loaded. As a result, shipping costs have risen and cargo now moves more slowly across the country.
Rate hikes weigh on corporate investment
ECB rate hikes are also dampening sentiment on corporate investment, the Bundesbank noted. Inflation could rise even higher temporarily, though the outlook still largely depends on the Middle East conflict.
Still, the central bank found no evidence yet of second-round effects on inflation through wages.
ECB still leaning toward a September hike
None of this is expected to stop the ECB from raising interest rates again in September. That move is largely a positioning step, adjusting the ECB's stance in case inflation rises further.
The ECB had previously cut rates to a more neutral setting, so even with a September hike, policy would stay only marginally restrictive at best — not enough for a full fight against inflation if one becomes necessary. Therefore, the ECB is positioning for the possibility of moving policy into more restrictive territory later.
Source: Investinglive
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