The zero interest phase is over for now. For the first time in 11 years, the European Central Bank (ECB) raised the key interest rate in July 2022 as a result of high inflation rates. Most recently it rose further to 3.0% and the Governing Council assumes that the peak has not yet been reached.

Inflation, especially in the 4th quarter, led to a massive collapse in consumption as an important pillar of the economy, so that according to the Federal Statistical Office there was a GDP decline of 0.2% in the end, while the previous quarter ended with growth of 0.5%. Should the first quarter of 2023 also be negative, one would already be talking about a technical recession. However, the important ifo business climate index increased for the fourth month in a row in January and, according to the managers surveyed, the outlook appears to be brightening significantly. Trade, manufacturing and the service sector recorded clearly positive jumps, whereas the construction industry, among other things, continued to stagnate.

Inflation is expected to ease for the year as a whole (6.0% compared to 7.9% in the previous year) and slight GDP growth (0.2%, revised up from -0.4% previously). A recovery in consumer spending, especially for non-essential goods, can be expected due to the continued very high employment rates and an adjustment of nominal wages to the high inflation.

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