Bundesbank Forecast Drops

In its report today:

New Bundesbank projection: German economy slowly picking up again

The outlook for the German economy has become brighter again following the slowdown towards the end of 2012.The world economy will gain momentum in the course of this year. In the euro area, too, the economy appears to be bottoming out. Nevertheless, the Bundesbank sees continuing structural problems as standing in the way of a rapid improvement. This is likely to place a major strain on the German economy, which is integrated into the international division of labour. “The positive situation on the labour market, the fairly sharp increase in wages and the easing of inflation are supporting private consumption in Germany, however,” was Bundesbank President Jens Weidmann’s optimistic comment with regard to the latest semi-annual projection. Apart from that, the Bundesbank economists’ view is that residential construction is benefiting from low interest rates, and commercial investment is slowly picking up again with better utilisation of industrial capacity.

And:

“Much will depend on whether the economic situation stabilises in the euro-area crisis countries and whether expansionary forces will gradually gain the upper hand there,” explained Mr Weidmann, who also warned that a slackening of consolidation and reform efforts might destroy confidence again, which would then also negatively affect the financial markets. As Mr Weidmann stressed, “A sustained upturn in the world economy is just as important as a precondition for the growth path we have assumed.” In this connection, the Bundesbank has observed that — above all, in some emerging economies — structural dislocations are now also becoming apparent alongside structural weaknesses. The risks to this projection in the real economy are therefore largely on the downside. This assessment also implies that further negative shocks would lead to a loss of labour market stability and the onset of negative multiplier effects.

Experts are left to figure why the bank’s forecasts diverge so much with private sector estimates.