FRANKFURT (MNI) – Germany’s economic recovery should gain momentum
in the months ahead, benefitting from strong exports and catch-up
effects after a weak first quarter, the German Bundesbank said in its
Monthly Bulletin, published Wednesday.

The sovereign debt crisis has not hit Germany’s economic recovery
yet but it may weigh on confidence and economic developments ahead, the
report warned.

The economic recovery will “gain significant momentum” in spring
2010 after negative one-off effects come to an end, the German central
bank said. “The economic performance should in all likelihood expand
robustly.”

The key growth driver should remain the export sector, since it is
likely to receive additional support from the recent drop in the value
of the euro, the Bundesbank said.

“Germany’s exporters are benefitting from the most recent shifts in
international currency relationships,” it said.

Industrial new orders have shown a healthy recovery in the first
quarter and should increasingly translate into stronger output, the
report projected.

“The very strong production increase in March may suggest that
industrial production levels were not stepped up at the start of the
year due to weather-related transportation problems,” the Bulletin said.

A fresh rise in capacity utilization shown in the latest IFO survey
also supports expectations of a stronger recovery in industrial output
in the months ahead, the Bundesbank said.

The construction sector, too, should continue to benefit from
catch-up effects, extending March’s recovery, the bank projected. “At
the end of 2009, numerous projects have been approved, particularly in
the structural constructions sector, but construction starts were
delayed due to long cold period,” the Bundesbank noted.

“Industry confidence as regards economic developments also
influences sentiment among private households,” the report said.

Given the stable situation on labor markets, unemployment fears do
not appear to play a significant role at the current juncture. The
propensity to buy remains on a “comparatively elevated level,” the
Bundesbank said.

“This is a good pre-condition for private consumption to continue
to flank the export-lead recovery,” the report assessed.

Still, while the sovereign debt crisis has “thus far not hit the
real economy,” the central bank did not exclude a negative impact ahead.

“The risk of negative effects on confidence as a result of the most
recent, dramatically exacerbated tensions in the Eurozone may still
prove to be a negative factor in this regard,” the Bundesbank warned.

Turning to inflation, the Bundesbank said that the recent upward
trend was primarily driven by energy and food prices and was “most
recently reinforced by the depreciation of the euro.”

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