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Bundesbank Says German Economy to Weaken After ‘Explosive’ Start

Bundesbank Says German Economy to Weaken
A German flag flies in front of the Bundesbank headquarters. Photographer: Ralph Orlowski/Bloomberg

The German Bundesbank said Europe’s largest economy will probably lose some growth momentum over the coming months after an “explosive” start to the year.

“Growth is likely to ease somewhat in the foreseeable future,” the Frankfurt-based Bundesbank said in its monthly bulletin published today. The economy’s 1.5 percent growth rate in the first quarter from the previous three months “considerably overstates the underlying economic momentum. Output growth was clearly lifted during the reporting period by backloading and catching-up effects.”

Germany’s economy is powering the euro region’s expansion after expanding a record 3.6 percent in 2010. Companies are stepping up spending and hiring to meet booming export orders, while unemployment at a 19-year-low is encouraging consumer spending. The Bundesbank said today the “upturn could support economic activity for some time.”

Still, the central bank called faster inflation among risks to economic growth, saying monetary policy is still “extremely expansionary.” The “price climate has deteriorated significantly,” according to the report.

“The stabilizing effects emanating from domestic demand can only take full effect in a tension-free environment,” the Bundesbank said. “Potential risks in this respect accompany the current scenario in that the economy is traversing the corridor of normal utilization at what appears to be a virtually undiminished pace of expansion,” with both business expectations and consumer confidence having “reached highs exceptionally early on in this cycle.”

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