On Monday, Germany’s Bundesbank said in its monthly report that in the second quarter of 2023 German economic output stagnated, following two previous quarters of contraction, and over the near term, growth is projected to continue to remain stagnated.

In the report the central bank wrote, “Economic output is likely to more or less stagnate again in the third quarter of 2023.”

The report forecasts industrial output remaining weak, due to downward trends in foreign demand of late.

The regulator wrote, “High financing costs will probably continue to weigh on investment. They are also still dampening demand in the construction sector, which is likely to be increasingly reflected in production.”

The regulator also noted Germany’s budget deficit will be boosted significantly in 2023 as the government continues to offer support through the inflationary crisis to enterprises and households, mainly through the use of energy price brakes.

On a positive note the report did note that stable employment, strong growth in wages, and falling inflation meant there would likely be a continuation of the recovery in private consumption, which will help fuel a recovery in the services sector.

Last month, the International Monetary Fund forecast that Germany would be the sole G7 economy which would see a yearly contraction in 2023 as it continues to battle with the fallout from the loss of access to cheap Russian pipeline gas and the inflationary cost of living crisis it produced.