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BERLIN (MNI) – Germany’s leading economic research institutes on
Thursday slightly raised their German GDP forecast for 2012 to +0.9%
from +0.8% forecast in October.

For next year, the think tanks project GDP growth of 2.0%.

On a quarterly basis, the institutes are calling for GDP growth
rates in 2012 of 0.1% in 1Q, 0.5% in 2Q, 0.5% in 3Q and again 0.5% in
4Q. For 2013, they expect quarterly increases of 0.5% in 1Q, 0.6% in 2Q,
0.6% in 3Q and again 0.6% in 4Q.

“The economy is gathering steam after a phase of weakness over
several months,” the institutes said in their joint report. Positive
economic forces will prevail in the forecasting period, they argue.

The institutes expect production output to markedly gain momentum
this spring and continue to significantly increase through this year and
next.

The main growth impulses will come from domestic investments and
private consumption, they predict. Exports will remain more subdued due
to the weak state of the economy in the rest of the Eurozone, they
argue.

The country’s labor market will continue to improve, thereby
supporting consumption spending, the institutes said.

Given rising capacity utilisation rates and increasing tightness of
labor supply, wage and price pressures will increase markedly, they
said. Effective wages are seen rising more than 3% both this year and
next.

“We don’t see a wage-price spiral yet but the risk absolutely
exists,” Joachim Scheide, the chief economist of the Kiel-based IfW
institute, said at the press conference on presenting the joint
forecasting report.

German national CPI is projected to rise by 2.3% this year and by
2.2% next year.

Germany’s fiscal situation is seen improving further. The
institutes expect that the country’s deficit will sink to 0.6% of GDP
this year and further to 0.2% next year. Still, the think tanks call for
enhanced consolidation efforts in Germany, criticizing that the
government seems to become a bit lax on that matter.

The institutes lowered their forecasts for Eurozone GDP for this
year to -0.3% from +0.4%. For next year, they expect the Eurozone
economy to grow by 1.1%.

The Eurozone’s annual average HICP inflation is forecast by the
institutes to be 2.3% in 2012 and 1.8% in 2013. German HICP is projected
at 2.5% and 2.4%, respectively. The European Central Bank’s definition
for price stability is HICP close to but below 2%.

The institutes expect that the ECB will keep interest rates at 1%
until the end of 2013.

The main risks for the forecasting scenario comes from the
sovereign debt crisis in the Eurozone “which is still not fundamentally
solved,” the think tanks note. They argue for creating a mechanism which
allows an orderly insolvency of states.

The institutes warn that the ECB’s crisis fighting measures might
hamper its efforts to keep inflation in check. “The ECB must not be
permanently pushed into intervening and supporting the markets,” they
urge.

Monetary policy has it limits in helping to deal with the crisis,
the institutes said. The ECB can only buy time for governments to make
the necessary decisions. Yet, there exists the risk that the ECB will
not be able to free itself from the role as a crisis manager, the report
warns.

For their forecasts, the institutes assumed an average euro-dollar
exchange rate of $1.33 through the end of 2013. The price of Brent crude
oil is projected at $123 per barrel this year and $126 next year.

The forecasts were jointly compiled for the Economics Ministry by
the Ifo institute, the ZEW institute, the IfW institute, the IWH
institute, the RWI institute and Kiel Economics. There were also two
foreign institutes participating, namely the Swiss KOF institute and the
Austrian IHS institute.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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