German Economy to Grow Faster as Exports Revive, Institutes Say

Germany’s economy is shrugging off a contraction at the end of last year and starting to grow due to revived exports and rising private consumption, the country’s leading economic institutes said.

Europe’s biggest economy will expand by about 0.8 percent this year, double the rate forecast by the government, and pick up momentum to grow 1.9 percent in 2014, said the group, which includes Munich’s Ifo institute. The euro area as a whole will probably contract by 0.4 percent this year and expand by 0.9 percent in 2014, the group forecast.

Germany’s growth outlook “is again pointing upwards” tracking developments in global markets, the group stated in its report, released in Berlin today. “The headwind in the world economy has also tailed off somewhat” while “subsiding uncertainty” over the euro’s future is supporting business confidence.

Rising economic growth may help Chancellor Angela Merkel as she seeks a third term in Sept. 22 elections and back up her conviction that sound budgets will restore the euro area to health. Germany will run a budget surplus this year and in 2014, the Finance Ministry said yesterday.

At the same time, Merkel is struggling to ward off pressure from within the 17-nation euro area as well as from her Group of 20 partners to back temporary budget easing across the currency union to promote growth. At a press conference in Berlin on April 9, U.S. Treasury Secretary Jacob J. Lew said “we need to balance policies of growth and investment in the future with policies of fiscal consolidation.”

French Deficit

France, Germany’s biggest trading partner, will report economic growth of just 0.1 percent this year, rising to 1.2 percent in 2014, its government said yesterday. The French budget deficit will be 3.7 percent this year, above the euro’s 3 percent limit, and 2.9 percent in 2014.

Merkel’s spending plan for this year assumes economic growth of 0.4 percent and was made in the fourth quarter when a 2 percent slump in exports caused the economy to contract. German exports that include cars made by Volkswagen AG (VOW) and machines by Siemens AG (SIE) may expand by 2.1 percent this year, accelerating to 6.1 percent in 2014, the institutes said.

“Conditions are ripe for a sharp increase in economic output” as Germany upholds its competitive edge over its biggest rivals for export share in global markets, according to the report. Euro area consumer prices will rise just 1.7 percent on average this year, increasing to 1.6 percent in 2014, while unit labor costs will rise 1.9 percent and 1.8 percent, it stated.

The employment level -- about half of Germany’s 82 million citizens work -- will hit a record of 42 million in 2014, while the jobless tally will decline to 2.8 million this year and 2.7 million in 2014. The European Central Bank will probably keep interest rates unchanged at 0.75 percent, the group said.

The institutes are commissioned twice yearly by the government to produce a broad economic review. In October, the group forecast Germany’s economy would grow by 1.0 percent this year.

The group includes the Ifo, the IfW institute Kiel, the RWI Essen institute and the IW Halle institute

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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