FRANKFURT (MNI) – The German economy is poised for a recovery in
the second quarter, even though evidence suggests that economy activity
declined slightly in the first quarter, Germany’s Bundesbank reported
Monday.

In its Monthly Report for April, Germany’s central bank said that
in the first three months of the year temporary factors burdened the
German economy.

Construction suffered again in February from the cold and snowy
winter weather, and German industry also felt the effects of the
autumn’s moderate new orders level, the bank explained.

A sharp drop in car registrations and virtually flat retail sales
indicate that real private consumer outlays retreated further.

Because construction activities likely also suffered in March from
wintery weather, “in total a slight reduction of real GDP is anticipated
for the first quarter,” the bank wrote.

Nevertheless, the positive fundamental tendency in the economy
remains “clearly visible,” the Bundesbank assured. The “markedly
improved assessments” of business conditions in all sectors as well as
rising industrial orders since the beginning of the year suggest a
“noticeable expansion” of industrial production for the months to come.

“For the second quarter, the indicators therefore promise a
recovery of the economic recovery process that is not only marked by
catch-up effects,” the bank predicted.

The German government is expected to maintain its GDP forecast of
1.4% for this year, with growth next year expected to be 1.6%, Germany’s
Der Spiegel magazine reported over the weekend.

Germany’s leading economic research institutes last week forecast
GDP growth of 1.5% this year and 1.4% next year.

Germany’s Economics Ministry officially releases new forecasts on
Wednesday.

The Bundesbank also reported that Germany’s general government debt
(counting central, state, and local governments and social security
funds), totaled approximately E1.762 billion, or 73.2% of GDP, at the
end of 2009.

This is a E116 billion rise in debt level and a 7 percentage point
increase on the year, the bank said.

“Of this sharp rise in debt, E45 billion is attributable to support
measures for financial institutions in connection with the financial
market crisis,” the bank explained.

Such measures accounted for E98 billion of the debt in 2008 and
2009, the bank wrote.

“However, the impact on the general government deficits was
limited, as a sizeable increase in government financial assets was
recorded simultaneously,” the bank noted.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

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