Bundesbank Sees German Economy on Upward Trend Amid Uncertainty

The Bundesbank said Germany’s economy, Europe’s largest, will continue to grow even as the sovereign debt crisis spreads uncertainty.

“The German economy made a very good start to the summer quarter” and recent data “speak in favor of Germany continuing its upward course for now,” the Frankfurt-based central bank said in its monthly report today. “Still, the outlook for future economic developments continues to be subject to great uncertainty.”

German business confidence unexpectedly dropped to the lowest level in more than two and a half years this month and unemployment rose for a fifth month in August as companies feel the strain of weaker euro-area demand and slower global trade. At the same time, the European Central Bank’s new bond-purchase program has boosted financial markets, helping German investor confidence rise for the first time in five months in September.

“There are signs that investment spending isn’t declining further,” the Bundesbank said. While “the labor market is showing signs of a weaker economy,” growth “continues to be supported by strong household willingness to spend and apartment construction.”

The Bundesbank in June lifted its growth forecast for this year to 1 percent from 0.6 percent. It predicts growth of 1.6 percent for 2013. By contrast, the ECB forecasts the 17-nation euro region, Germany’s biggest export market, will contract 0.4 percent this year before growing 0.5 percent next year.

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