The German economy is set to contract slightly in the third quarter as private consumption is unlikely to contribute positively, Bundesbank said in its monthly report released Monday.
Households are holding back spending despite somewhat slowing inflation and strong wage increases and robust labor market situation, the bank noted.
Consumer-related areas of the service sector also suffered from subdued private spending. Bundesbank forecast the weakness in industrial sector to continue.
The central bank said the labor market conditions remained stable despite weakening economic activity.
Further, the bank forecast harmonized inflation to continue to decline in the coming months. Nonetheless, the bank said inflation is set to stay above 2 percent in the medium-term against the background of robust wage growth.
