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German outlook improves despite euro debt crisis

Wednesday, 22 February 2012 | 00:00
Germany's economic outlook has improved even as the euro region's debt crisis remains a risk to growth, the Bundesbank said.
"The outlook for the German economy improved perceptibly" even "though risks relating to the sovereign-debt crisis remain," the Frankfurt-based central bank said in its monthly report published yesterday. "In the first quarter of 2012, external factors will continue to weigh on production. From the second quarter onwards, cyclical stimuli could gain the upper hand."
Boost to exports
The German economy, Europe's largest, contracted less than economists forecast in the fourth quarter, factory orders from outside the euro area are boosting exports and business confidence jumped to a five-month high in January, adding to signs it may avoid a recession.
The Bundesbank in December forecast growth will slow to 0.6 per cent this year from 3 per cent in 2011 before expanding 1.8 per cent in 2013.
The December projection "of a fairly rapid resumption of growth looks more likely to materialise at the present juncture," the Bundesbank said. "Vigorous construction demand will provide the economy with a strong stimulus for the foreseeable future" and "private consumption is likely to continue to buoy economic activity."
The outlook for the global economy has improved as well, said the Bundesbank, which is led by Jens Weidmann.
"This more positive environment should remain in place provided that the sovereign-debt crisis in Europe and the situation on the oil markets do not deteriorate noticeably in the near future," it said. "Some of the current forecasts by international organisations look overly pessimistic."
Gloomy IMF forecasts
The International Monetary Fund last month cut its forecast for global growth and warned that the European debt crisis threatens to derail the world economy.
The euro area economy may enter a "mild recession," the Washington-based lender predicted on January 24.
Monetary policy in the euro area will continue to be "very expansionary," the Bundesbank said, adding that it doesn't plan to participate in efforts to create more European Central Bank-eligible collateral.
"The Bundesbank sees no need for such measures to provide liquidity in Germany," it said. "The German banking system is currently very generously supplied with liquidity as a result of the inflow of funds from other euro area countries."
Source: Bloomberg
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