Thursday, 22 May 2014

Bundesbank cuts Germany’s growth outlook

Following the central bank’s monthly report, the Bundesbank has downgraded growth forecasts in Germany for both this and next year. However, the institution suggests a recovery for the euro area may well be on the horizon, having recorded a rise in business confidence in May.

Bundesbank cut its December projections for 2013 from 0.4 to 0.3, and stated that growth would amount to 1.5 percent in 2014, a 0.4 percent drop on the previous estimation. The revised figures were “due mainly to downward revisions with regard to the external environment,” said the bank.

The downgrade follows the IMF’s decision to cut it’s 2013 growth forecast in half to 0.3 percent.

“Much will depend on whether the economic situation stabilises in the euro-area crisis countries and whether expansionary forces will gradually gain the upper hand there,” said the central bank’s President, Jens Weidmann. “A sustained upturn in the world economy is just as important as a precondition for the growth path we have assumed.”

Europe’s largest economy narrowly escaped recession through the first quarter, posting 0.1 percent growth, the likes of which was in large part due to private consumption having offset disappointing exports.

The bank wrote in a related statement: “In the euro area the economy appears to be bottoming out. Nevertheless, the Bundesbank sees continuing structural problems as standing in the way of a rapid improvement. This is likely to place a major strain on the German economy, which is integrated into the international division of labour.

“Consolidation and reform efforts appear to be slackening. This could have a negative effect on the financial markets and further intensify the debt crises. Confidence would then be further eroded, which would also have negative consequences for the cyclical outlook for the German economy.”

The bank anticipates the euro area to offer “no meaningful stimuli” to the German economy until 2014 at the earliest. However, despite the euro-area crisis, Bundesbank expect Germany to later this year demonstrate a modest recovery, in large part due to a robust labour market, significant wage increases and slowing inflation.

The bank’s inflation figures were revised upwards this year to 1.6 percent from 1.5 percent, though reduced to 1.5 percent from 1.6 percent for 2014.

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