BBK Slashes Growth Forecasts For 2013, Sees Rebound In 2014

Author: Market News International | Category: News

FRANKFURT (MNI) – The Bundesbank Friday drastically cut its
forecasts for German growth next year but said underlying economic
strength means unemployment will remain low and a quick recovery can
still be expected in 2014.

In its semi-annual economic outlook, the Bundesbank slashed its
growth forecasts for 2013 to +0.4%, down from +1.6% predicted in June,
but a rebound to +1.9% GDP growth is seen for 2014.

The Bundesbank warned of signs that Germany’s economy will likely
contract in the fourth quarter of this year and possibly also the first
quarter of 2013. This year’s growth forecast was cut 0.3 percentage
point to +0.7%.

Unemployment forecasts for next year were also revised upward
significantly, though the Bundesbank said it still expected the labour
market “will come through the economic slowdown in good shape.” The
jobless rate is seen rising from 6.8% this year to 7.2% next year, up
from the 6.5% figure forecast in June. 2014 unemployment is seen steady
at 7.0%

“The sound underlying health of the German economy suggests that it
will overcome the temporary lull without major damage to employment, in
particular,” Bundesbank president and European Central Bank Governing
Council member Jens Weidmann said in a statement.

The Bundesbank’s forecasts for inflation were largely unchanged
from its June projections, with 2012 seen at +2.1%, 2013 revised down
0.1 percentage point to 1.5% and 2014 seen at +1.6%.

The Bundesbank warned that its growth projections are
“characterised by a high degree of uncertainty. The balance of risks is
on the downside.”

The key factors proving a drag on growth are the Eurozone sovereign
debt crisis and the global economic slowdown, the German central bank
said. Projections of a recovery are therefore based on an improving
global situation and ongoing reforms in the euro area.

But the Bundesbank noted progress with adjustment programs in the
Eurozone periphery that suggested recovery in 2013 was the most likely
scenario: “It therefore appears probable that the economic situation in
the euro area will stabilise over the course of the coming year, and
that a nascent recovery will follow, if only hesitantly at first.”

Germany’s real exports are seen rising 4.0% this year before
falling to +1.9% in 2013, down from a projection of +4.0% in June, due
to the weakness expected over the coming two quarters. The dip in
exports is expected to be “short-lived,” however, with a recovery to
+5.9% seen in 2014.

Import growth is projected lower, at +2.2% this year, but higher in
the following years, rising at a 3.0% clip in 2013 and 6.6% in 2014.
That means net exports, after adding 1.0% to GDP this year, will
subtract 0.4% next year and be flat in 2014.

Private consumption, which has also helped support German growth
this year, is expected to continue picking up in coming years after
climbing 0.7% in 2012. Consumer spending should rise by 1.0% next year
and 1.3% in 2014, the Bundesbank said.

— Frankfurt bureau: +49 69 720 142; email:

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