The Bundesbank raised its forecast for German economic growth this year, projecting the fastest expansion since data for a reunified country began in 1992.
Gross domestic product will expand 3.6 percent in 2010, 2 percent in 2011 and 1.5 percent in 2012, the Frankfurt-based central bank said in its bi-annual economic outlook today. In June, the Bundesbank predicted growth of 1.9 percent this year and 1.4 percent next year, though in October it said the economy may expand “more than 3 percent” in 2010.
“The recovery in the German economy will continue in the next two years following the impressive catching-up process in the current year,” the Bundesbank said. “Exports will remain the main driving force behind the upturn, although external impulses will have a growing impact on domestic activity.”
Germany’s recovery is broadening as companies increase hiring to meet export orders, stimulating consumer spending. That’s widening the gap with euro-area peers such as Greece, Ireland, Portugal and Spain, which are struggling with a sovereign debt crisis. German business confidence surged to a record high in November and retail sales jumped the most in nearly three years in October as unemployment fell to the lowest level in 18 years.
The euro rose to $1.3266 after the Bundesbank projections were published from $1.3245 beforehand.
Unemployment “should continue to decline,” the Bundesbank said, predicting the rate may drop to 6.9 percent in 2012 from 7.5 percent currently.
While growth slowed to 0.7 percent in the third quarter from a record 2.3 percent in the second, household spending became one of the main drivers. The Berlin-based DIW institute said on Nov. 29 that the economy, Europe’s largest, will maintain its pace of growth in the current quarter.
“Private consumption is benefiting from growing employment and higher wages,” the Bundesbank said. “Investment in machinery and equipment as well as in construction is also being given a boost by low interest rates.”
At the same time, “inflation remains within bounds compatible with stability,” it said, forecasting it will average 1.1 percent this year, 1.7 percent next year and 1.6 percent in 2012.
The European Central Bank, which yesterday set its benchmark interest rate at a record low of 1 percent for a 20th month, aims to keep inflation across the 16 euro nations just below 2 percent.
Germany’s benchmark DAX stock index has gained more than 16 percent this year, compared with a decline of 6 percent in the Euro Stoxx 50 gauge of euro-area equities. German investor confidence rose for the first time in seven months in November as the economy powered ahead of its neighbors.
Euro-area governments’ efforts to consolidate their budgets may still damp German growth by reducing demand for its exports. Ireland on Nov. 28 became the second euro nation after Greece to get a bailout from the European Union and International Monetary Fund, and investors are speculating Portugal could be next.
“Downside risks in terms of the projection originate from the persistent uncertainties in the financial markets due to the fragile position of public finances in a number of industrial countries,” the Bundesbank said.