BERLIN (MNI) – Germany’s Ifo economic research institute on Tuesday
raised its forecasts for German GDP growth this year to 3.7% from the
3.5% predicted jointly with the country’s leading institutes in October.

For the coming year, Ifo now sees GDP growth of 2.4%, up from the
institutes’ forecast of 2.0%. Growth will be carried in 2011 mainly by
domestic demand, the Munich-based institute said.

Private consumption growth is forecast to rise to 1.4% next year
from a projected 0.5% this year. Ifo argued that the government’s budget
consolidation course will increase citizens’ confidence and thereby
support consumption. The continued improvement of the labor market will
also brighten consumer sentiment, it said.

Annual average unemployment is forecast by Ifo to drop to 2.943
million next year from an expected 3.242 million this year.

Investment spending will be supported by low interest rates, the
institute reasoned. Equipment spending is tabled at +9.8% in 2010 and
+8.7% in 2011. Construction investment is seen at +4.2% this year and
+2.1% next year. Other investment is projected at +6.5% in 2010 and
+5.6% in 2011.

Due to slowing global growth, German export growth is forecast by
Ifo to slow to 7.4% next year from 14.8% this year. Import growth is
seen moderating to 7.4% in 2011 from 14.2% in 2010.

The overall healthy economic recovery plus the government’s budget
consolidation course will improve the country’s fiscal situation. Ifo
expects that Germany will be able to meet the EU’s deficit ceiling of
3%-of-GDP already next year. The think tank projects a public budget
deficit of 2.3% of GDP in 2011 after 3.5% in 2010.

Inflation over the coming two years is seen remaining moderate. The
institute expects German CPI of 1.1% and 1.7% this year and next.

The Eurozone’s annual average harmonized HICP inflation is forecast
by Ifo at +1.5% in 2010 and +1.4% in 2011 — still markedly below the
ECB’s definition for price stability, which is close to but below +2%.
Eurozone GDP growth is projected at 1.7% this year and 1.4% next year.

The institute expects that the European Central Bank will raise
interest rates by 25 basis points only towards the end of next year.

For its forecasts, Ifo assumed an average euro-dollar exchange rate
of $1.33 in 2011.

As a marked risk to its forecasts, the institute cited the
continuing tensions on European sovereign bond markets.

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

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