BERLIN (MNI) – The German economy is set to return to its growth
path in the spring, the Bundesbank predicted in its latest monthly
report, released Monday.
“The outlook for the German economy recently improved perceptibly,
though risks relating to the sovereign debt crisis remain,” the report
said.
In the first quarter, negative external factors will continue to
weigh on production, the Bundesbank reasoned. “From the second quarter
onwards, cyclical upswing forces could gain the upper hand again.”
Thus, the assumption underlying the Bundesbank’s economic forecast
in December “of a fairly rapid resumption of growth looks more likely to
materialise at the present juncture,” the report observed.
Vigorous construction demand will provide the domestic economy with
a strong stimulus for the foreseeable future, the central bank
predicted. “This also applies to the winter months – unless weather
conditions mean that production has to be interrupted for prolonged
periods,” it said. In that case, there would probably be considerable
catching-up effects in the spring, it said.
The positive sentiment among households is proving a key catalyst
for housing construction, the Bundesbank remarked. “Wage growth and the
perceived low risk of redundancy, in combination with the still very
favorable financing conditions, is making buying property more
attractive,” the bank said.
The improved income prospects are also buoying the buy-to-let
market, which buyers seem to consider as a form of investment that is
likely to maintain its value, the report observed.
Private consumption is likely to continue to buoy economic
activity, the Bundesbank said. Consumers appear to see only limited
income risks at present, it noted. As a result, saving is not a primary
motive at the moment.
The overall healthy economic situation last year was clearly
reflected in earnings, the report noted. Last year, gross wages and
salaries per employee rose at a pace last seen in 1993, it noted.
One reason for this was the negotiation of collective wage
agreements with higher scheduled increases in pay rates, it said.
Another was that employers made, in some cases, considerable special and
bonus payments on a voluntary basis. “For the current year, a shift
towards higher negotiated wage increases coupled with a smaller wage
drift looks likely,” the Bundesbank assessed.
Consumer price inflation in Germany was marked by the sharp rise in
energy prices in the final quarter of 2011, although the inflation rate
excluding energy also showed a slight acceleration, the central bank
remarked.
“However, assuming slower energy-price inflation, year-on-year
inflation should tend to moderate from its present level over the next
few months,” it predicted.
Monetary policy will remain to have a “very expansionary” impact on
the domestic economy, and “ample liquidity” will ensure very low market
interest rates, the central bank said.
A number of measures to extend the collateral framework were agreed
in the Eurozone in December, the Bundesbank reminded. These can, on
application, be applied by individual central banks and are not subject
to risk-sharing, it noted.
“The Bundesbank sees no need for such measures to provide liquidity
in Germany,” it stressed. “The German banking system is currently very
generously supplied with liquidity as a result of the inflow of funds
from other Eurozone countries.”
This becomes evident, for example, in the strong use of the deposit
facility by German credit institutions, the report pointed out. “The
considerable inflows of funds in recent months are a sign of the ongoing
disruptions on the interbank market,” it noted. This lack of confidence
and the inflows to Germany are reflected in the sharp increase in the
Bundesbank’s claims under the TARGET2 payment system, it said.
While many firms have recently scaled back purchases of
intermediate goods and probably also delayed non-urgent investments,
they are unlikely to have reappraised their medium to long-term
strategic plans on the whole, as the economic problems are widely
regarded as being temporary in nature, the report argued.
Germany’s labor market also remains on course for growth despite
the temporary economic slowdown, the central bank reasoned. Employment
continued to accelerate appreciably in the last quarter of 2011, it
observed.
Turning to the country’s fiscal situation, the Bundesbank noted
that the public deficit ratio fell last year from 4.3% to 1.0% of GDP,
mainly due to the phasing-out of financial market support measures,
favorable cyclical effects and additional budget relief from higher tax
revenues and reduced labor market-related spending.
“In the current year, by contrast, the deficit ratio looks set to
remain virtually unchanged as things currently stand,” it said. Assuming
a limited economic slowdown and barring any major additional impact from
the financial and sovereign debt crisis, there should be a slight
structural improvement, it reckoned.
“Germany’s fiscal consolidation aims therefore appear very
unambitious, and the calls — which have also been made at an
international level — for Germany to relax its consolidation course
have no basis in substance,” the Bundesbank stressed.
Both the federal government and numerous state governments are
still falling well short of the medium-term objective of a structurally
close-to-balance budget, the central bank said. At the total public
budget level this is, however, masked by high surpluses run up by the
social security funds, it noted.
“It is also becoming apparent that the public debt ratio will
remain well above the reference value of 60% of GDP for many years to
come, even assuming that the sovereign debt crisis does not escalate
further,” the Bundesbank pointed out.
“Against this backdrop, further consolidation should not be
delayed, and a structurally balanced budget, which is now enshrined in
the German constitution through the debt brake for central and state
governments, should be brought about rapidly,” it urged.
“Nor does the economic outlook justify any relaxation of
consolidation efforts, besides which the automatic stabilisers would
take effect should the economy weaken significantly (which does not
currently appear probable),” the central bank argued.
Strict implementation of the national budgetary rules is also
important in order to avoid undermining the credibility of the newly
established European fiscal compact, the Bundesbank said.
Moreover, the report warned that there are “significant risks” for
the federal budget from Germany’s part in the rescue measures for
fiscally ailing Eurozone states.
–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com
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