FRANKFURT (MNI) – Germany’s recovery is expected to slow in the
second half but still allow for full-year GDP growth of around 3%, the
Bundesbank said Monday.

Unchanged full-year growth forecasts for the Eurozone’s largest
economy limit the size of the potential cut in European Central Bank
staff’s forecasts to be released in early September.

Following the recent global economic slowdown and the drop in
German GDP growth to 0.1% in 2Q from 1.3% 1Q, there have been g
expectations of downward revisions in the ECB staff’s projections.

“Real GDP growth in the magnitude of 3% may still be expected for
the full year,” the Bundesbank said in its Monthly Report.

The Bundesbank ascribed “the volatile pattern in the first half of
the year” in part “to the weather-related output losses at the end of
last year.”

“The weak growth in the second quarter is therefore not in itself
proof that the German economy’s dynamics have become less stable as a
result of the foreseeable weakening of foreign demand and heightened
uncertainty,” the bank said.

Nevertheless, the report noted risks to Germany’s outlook.

“There are a number of global risk factors such as uncertainty as
to what lies ahead for the US economy and a potential cyclical slowing
in the emerging markets. In addition, increasingly jittery global
financial markets and the ongoing sovereign debt problems could erode
confidence,” the Bundesbank warned.

It also observed that on the domestic front, “previously
extraordinarily optimistic business expectations have been lowered
considerably, and incoming orders — excluding large orders — have also
lost momentum.”

Still, the bank said that overall “the domestic economy is still
very robust, largely as a result of enterprises’ marked willingness to
invest, sharply higher demand in housing construction in recent months
and the favourable labour market outlook.”

The strong labor market as well as realized or foreseeable wage
increases could also help to support consumer sentiment that “remains
strong” at least as long as “uncertainty remains limited.”

“As things currently stand, the German economy looks set to
maintain its positive underlying economic trend in the second half of
the year, albeit at a slightly slower pace,” the Bundesbank said.

–Frankfurt bureau tel.: +49-69-720142. Email: jtreeck@marketnews.com

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