Despite a slight uptick in the second quarter, the German economy may contract more than anticipated this year.

Due to higher borrowing costs and increased spending on leisure, travel, and services following the pandemic, the country is witnessing a decline in global demand for its goods.

The Bundesbank anticipates a modest expansion in the three months leading up to June due to the stabilization of consumer expenditure.

However, the outlook is worse than the 0.3% contraction estimate of the central bank due to deteriorating sentiment.

As reduced producer prices are passed down the supply chain, the Bundesbank expects inflation to decline further in the coming months.

The surge in packaged vacations should keep core inflation, which excludes energy and food costs, elevated.