Germany's economy expected to expand by 1% faster than forecast this year


GERMANY’S ECONOMY is expected to grow faster than forecast by 1 per cent this year, despite continued euro zone uncertainty and a drop in its export market.

The Bundesbank in Frankfurt revised up its growth forecast from 0.6 per cent, citing a robust global economy and solid domestic consumption.

Next year, Europe’s largest economy is forecast to grow 1.6 per cent, down from 1.8 per cent previously forecast.

Despite the “difficult environment” in Europe, the Bundesbank said the recovery remained on track, though it warned that its projections are “subject to exceptionally high uncertainty and risk”, it said.

“If the sovereign debt crisis in the euro area doesn’t escalate, I expect that expansionary forces will maintain the upper hand,” said Bundesbank president Jens Weidmann. “Overall, the economic outlook for Germany is much better than in many other economies.”

As well as revised growth forecasts, the Bundesbank expects inflation in Germany to hit 2.1 per cent this year and 1.6 per cent next year, up from 1.8 per cent and 1.5 per cent previously.

“If uncertainty eases faster than we assume in our baseline scenario,” Dr Weidmann added, “the very favourable financing conditions could also have a stronger expansionary effect on the domestic economy.”

Meanwhile, seasonally adjusted data showed the value of German exports falling in April by 1.7 per cent, the first drop in six months, to €90 billion. Data from the Federal Statistics Office also showed a 4.8 per cent drop in imports – or €73.9 billion. The federal economics ministry was less optimistic than the Bundesbank, warning of risks posed to Germanys economy by a slowdown in worldwide economic output.

“In the course of the second quarter, the risks for the economic recovery have come more into focus.

“Both the indicators for the real economy and survey forecasts have worsened,” the ministry wrote in its monthly report.

“Concerns over economic growth, especially in the euro zone but also in the US or China, are becoming clearer day-by-day.”