Germany raises its economic forecast

Germany lifted its economic growth forecast for this year amid rising confidence in the benefits of low oil prices and the European Central Bank’s stimulus plans.

Germany’s economy will grow by about 1.5 per cent this year, compared with 1.3 per cent forecast in October, as growth in consumer spending and wages accelerates, the economy ministry said in its outlook published on Wednesday.

“The German economy is in good shape,” economy and energy minister Sigmar Gabriel said in the report, which is published twice yearly. Europe’s biggest economy “weathered geopolitical turbulence, returning to growth last year.”

While criticised by German politicians and the Bundesbank, the ECB’s decision to pump as much as €1.1 trillion into the 19-nation euro area is buttressing company confidence.

The ministry expects oil prices to average $59 per barrel this year, cutting costs for business, and for consumer confidence to remain strong as unemployment falls further.

Household spending is forecast to grow by 1.6 per cent after rising 1.1 per cent last year, the report said.

Exports Export growth was forecast to slow to 3.6 per cent this year from 3.7 per cent. The ZEW’s investor expectations gauge rose to its highest level in 11 months in January while Ifo’s business confidence index rose for a third month.

German unemployment in the first quarter will extend its decline, the labour ministry said on Tuesday, citing its monthly survey of regional job vacancies.

Bundesbank President Jens Weidmann has called oil prices a “mini stimulus programme” and questioned ECB president Mario Draghi’s anti-deflation agenda, saying the dip in inflation is temporary and linked to lower crude prices.

No “deflationary tendencies” are in sight in Germany, the ministry report said. “ECB policy that’s helped euro depreciation cannot be ignored empirically, even if like me you don’t support the bank’s move,” said Commerzbank AG chief economist Joerg Kraemer on Wednesday.

“There is an ideological temptation to play down the potentially positive aspect as quantitative easing will not solve structural economic woes.”

So-called quantitative easing may boost euro-area economic growth by 0.25 percentage points this year and by slightly more in Germany, Mr Kraemer said. The euro may trade at an average of $1.22 this year, the ministry report said.

Consumer prices are forecast to increase by an average 0.8 per cent this year, with gross wages rising an average 3.2 per cent, the economy ministry said.

The national minimum wage introduced in January will also boost private consumption, the report said.

– Bloomberg