FRANKFURT (MNI) – The German economy should conserve most of the
cyclical momentum built up in the second half of last year, the
Bundesbank said Monday.

However, the erosion in price stability is emerging as a risk to
private consumption, the central bank warned in its Monthly Report,
predicting that high oil and commodities prices would allow little
slowdown in domestic inflation in coming months.

“The price climate in Germany has deteriorated considerably,”
posing a risk for further support for economic activity from
consumption, it cautioned.

“A major factor behind this was the surge in world market prices
for energy, industrial commodities and food in the wake of the global
economic recovery, which was reflected in increased inflation, in
particular, at the upstream sales and production stages,” the central
bank explained.

“The German economy will in the current year be able to carry over
a good part of its cyclical momentum from the second half of 2010,” the
bank predicted, citing “very strong orders” from countries outside of
Europe.

Exporters’ presence in strongly expanding markets outside of Europe
is a benefit, the bank noted, observing the recent “strong” gain in
momentum in the United States.

“The impulses from the Eurozone will probably remain moderate,” the
BBK commented. And since these markets still carry “considerable
importance” for the German economy, “a certain loss of economic speed is
not to be ruled out, were there to be persistent weak orders from this
region.”

“Private consumption should continue to support the economy in the
coming months,” the bank predicted, noting consumers’ high propensity to
buy “based on very optimistic income expectations.”

“Private households are confident with respect to the assumed
continuation of the labor market recovery and the expectation of
noticeable increases in earnings,” the bank noted.

However, the “clouding of the price climate” has become “a risk for
the trend in consumption,” it argued.

In light of rising prices on international food and energy markets
and the strengthening upswing, “it is not to be expected that inflation
rates in the coming months will abate considerably.”

The federal statistics office’s flash estimate for German growth of
0.4% in 4Q “probably understates the underlying economic momentum, as
the extremely cold and snowy winter weather caused severe disruptions in
the construction and transport sectors in December,” it said.

The German economy is almost back at normal levels of capacity
utilization, “and in some areas of the economy capacity utilization
already exceeds the longer-term average,” the bank said

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

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