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Germany on Dynamic Growth Path, EU Commission Forecasts

May 5 (Bloomberg) -- Germany’s economy is set for “dynamic, broad-based” growth, the European Commission forecast today.

Europe’s largest economy will grow by 1.8 percent this year and 2 percent in 2015, outpacing forecast average growth in the 28-nation trade bloc of 1.2 percent and 1.7 percent those years, the commission said in its spring economic forecasts. The German economy grew just 0.4 percent last year.

Germany is benefiting from a favorable constellation of growth factors including moderate recovery across the trade bloc, low inflation and adequate provision of finance for investment, the commission’s economists said in their report. “The expansion is set to be essentially domestically-driven, given the still-supportive conditions for domestic demand,” they said.

The outlook is a boon to Chancellor Angela Merkel who has trumpeted fiscal austerity as a vehicle for the euro region to shake off the misery of the debt crisis.

“There are genuine signs that a more lasting recovery is now taking place in the EU,” it said.

Portugal’s plan to end its bail-out program this month without tapping supporting loans underlines that “the path we took together in the euro-zone was the right one,” the Finance Ministry in Berlin said yesterday.

Ukraine Crisis

The costs of the unfolding Ukraine crisis don’t figure in the commission’s forecast. Merkel’s government has played down the potential impact saying that only 3.3 percent of German exports are Russia-bound. Company executives are showing mixed signals over the potential of Ukraine to dent the economy.

German investor confidence fell for a fourth month in April, highlighting the risks posed by Ukraine, the ZEW economic research group survey showed on April 15. At the same time, Germany’s Ifo business confidence survey unexpectedly rose last month.

Germany’s investment outlook remains favorable “amid dissipating uncertainty,” the commission said today. Exports will be boosted by economic recovery in the euro area, said the commission. Germany’s current account surplus will reach 7.3 percent of economic growth this year, dropping to 7 percent in 2015 as imports grow faster than exports.

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

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Zoe Schneeweiss, Jones Hayden

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