Bundesbank President Jens Weidmann said the German economy, Europe’s largest, is in good condition even though growth will stagnate in the second half of the year.
“The German economy continues to be in robust shape but increasingly feels the inner-European adjustment process and uncertainty stemming from the sovereign debt crisis,” Weidmann told reporters in Tokyo today. “For the second half of the year, we expect stagnation.”
The International Monetary Fund this week cut its German growth forecast for 2013 to 0.9 percent from 1.4 percent, the same expansion rate projected for this year. Business confidence unexpectedly declined in September to the lowest in more than 2 1/2 years and factory orders and industrial production fell in August.
Even though the “the global economy is in a difficult situation,” that’s no reason to be pessimistic about the outlook, Weidmann said. “The adjustment process in Europe has started. But this process is only at the beginning.”
Weidmann said governments shouldn’t rely on the European Central Bank to solve the sovereign debt crisis that has already pushed five countries into seeking bailouts.
“I’m a bit concerned that hopes and expectations of politicians increasingly are focused on central banks,” Weidmann said. “It’s important to stress that monetary policy is no secret medicine. It can’t solve the problems and can only provide liquidity within its mandate. In the end, the causes for the crisis can only be solved by governments.”
Weidmann said one has to be aware that any extension of the time frame of Greece’s adjustment program will come with higher financing needs.
The Bundesbank, together with nine other contributors, will today sign bilateral loan agreements that will boost the IMF’s fire power, Weidmann said.
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