Bundesbank Raises German Growth Forecast After Record Quarter
Bundesbank Raises German Growth Forecast
Hannelore Foerster/Bloomberg
Cars enter and leave the German Central Bank in Frankfurt.
Cars enter and leave the German Central Bank in Frankfurt. Photographer: Hannelore Foerster/Bloomberg
The Bundesbank raised its growth forecast for Germany this year after the economy expanded at the fastest pace in two decades in the second quarter.
Gross domestic product will increase by about 3 percent in 2010, the German central bank said in its monthly bulletin published in Frankfurt today, lifting its forecast from the 1.9 percent it predicted in June. Data last week showed the economy grew 2.2 percent in the three months through June, the fastest since records for a reunified Germany began in 1991.
“The growth tempo will normalize after the extraordinarily dynamic second quarter,” the Bundesbank said. “But all in all, the fundamental economic situation in Germany is very favorable at the moment.”
Booming global demand for German goods is fueling the recovery in Europe’s largest economy from last year’s recession, when it contracted 4.7 percent. While global growth is set to “moderate” in the second half of this year, curbing exports, domestic demand may pick up as the labor market continues to improve and consumers and companies increase spending, the Bundesbank said.
“It’s even a bit on the cautious side,” said Juergen Michels, chief euro-area economist at Citigroup Inc in London who expects 3.4 percent growth in Germany this year. “Germany has bounced back much quicker than everyone expected.”
Stocks rebounded and U.S. index futures gained after the report, while the euro rose to $1.2854 from $1.2817. German government bond yields added as many as 3 basis points to 2.38 percent.
Prices Climb
“The economic upswing is likely to continue in the second half of the year,” the Bundesbank said, adding it expects “a continuation of moderate upward price developments.”
Inflation accelerated to 1.2 percent in July from 0.8 percent in June. Producer-price inflation, an early indicator of broader price pressures, quickened to 3.7 percent in July from 1.7 percent a month earlier, the Federal Statistics Office said today.
The strengthening economy should not tempt the government to commit the “cardinal sin” of relaxing its commitment to reduce the budget deficit, the Bundesbank said. For now, the central bank sees the deficit falling to around 4 percent of GDP in 2011 and below 3 percent in 2012.
To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net;
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