BERLIN (MNI) – The German government has raised its GDP growth
forecast for this year to +2.3% from +1.8%, Economics Minister Rainer
Bruederle said Wednesday on presenting the government’s new annual
economic report.

For 2012, the government projects GDP growth of 1.8%.

“The impulse from exports has now carried over to domestic demand,”
the government noted in its annual economic report. Domestic demand “is
increasingly developing as the driving force of the economic
development. The recovery has, thus, become broader.”

Domestic demand growth is projected by the government at 2.0% in
2011. Private consumption is seen increasing by 1.7% this year. Exports
are expected to grow by 6.5% and imports by 6.4%.

The continued upswing will lead to a further decrease of
unemployment, the government said. It forecast annual average
unemployment to fall to 2.94 million this year and further to 2.68
million next year.

The risen demand for labor will lead to upward pressure on wages,
Bruederle asserted. The government expects nominal gross wages to rise
by 2.9% overall and by 2.1% per employee. Disposable income of private
households is seen increasing by 3.4%.

Still, the government sees average inflation at a moderate 1.8%
this year, with core inflation projected at 1.3%. It also expects no
strong increase of inflation over the coming years, the minister said.

Yet, “there remain risks for the upswing which must not be
overlooked,” the government cautioned in its report, pointing to the
high interdependence of Germany with the global economy. “The
uncertainties for the global economy continue to remain high,” the
government remarked.

Bruederle stressed that foreign exchange rate manipulation as well
as protectionist tendencies had to be countered.

Regarding the current sovereign debt crisis in the Eurozone, the
minister reaffirmed that the issuance of joint eurobonds is no solution
to overcome the problem. Rather, Eurozone member states needed to
improve their competitiveness, he argued.

Moreover, he repeated that the European Financial Stability
Facility (EFSF) has currently sufficient funds to deal with the debt
crisis.

Arguing that the public debt of the US was larger than that of the
Eurozone, Bruederle said it was “strange” that markets were focusing on
the euro instead of the dollar.

The minister vowed that the German government will continue on its
budget consolidation course and halve federal net new borrowing by 2014.
Already this year, the country’s total public deficit will fall below 3%
of GDP, he said.

The government’s forecasts are based on the technical assumption
that the European Central Bank will leave its key interest rate
unchanged at 1.0% in 2011. The euro’s foreign exchange rate is projected
at $1.32.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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