BERLIN (MNI) – The Ifo economic research institute on Wednesday
revised up its forecasts for German GDP growth this year and next
compared to the April joint forecasts of leading economics think tanks
in Germany.

In its latest economic outlook, Ifo raised its 2010 German GDP
projection to 2.1% from the +1.5% institutes’ forecast, while the 2011
figure was lifted slightly to +1.5% from +1.4%.

In detail, the institute forecast German GDP to increase in the
second quarter of 2010 by 1.1% q/q, in the third quarter by 0.5% q/q and
in the fourth quarter by 0.3% q/q. For 2011, Ifo expects quarterly
growth rates of 0.3% each in Q1 and Q2 and of 0.4% each in Q3 and Q4.

“The German economy…remains on a recovery course,” the
Munich-based institute observed. The recovery is currently driven by
exports, buoyed especially by demand from Asia, it said.

Next year, domestic economic activity will also gain momentum, Ifo
predicted. The fledgling budget consolidation and the expiration of the
economic stimulus programs will be offset by rising confidence, the
institute argued.

“In a time of great distrust vis-a-vis public debtors, [the
government's budget consolidation course] might lead to a growth of
confidence among German consumers and investors, who in addition will
continue to profit from extremely low interest rates,” the institute
said.

“In the medium term, Germany could experience an investment driven
upswing as more savings capital is invested at home again,” Ifo
asserted. Especially the real-estate sector should profit from that, it
said. This will boost growth and the external trade surplus will
decline, it remarked.

“The crisis has triggered a shift in capital markets,
re-positioning the growth forces, which since the onset of the euro had
moved to the southwestern periphery of Europe, back to Germany,” Ifo
said.

The economic recovery will also positively influence the country’s
labor market, Ifo predicted. Annual average employment is seen
increasing by around 80,000 this year and by around 120,000 next year.
Unemployment numbers are forecast to decline by some 190,000 each in
2010 and 2011.

The country’s total public budget deficit is forecast to fall back
to 3.4% of GDP in 2011 from a projected 4.2% in 2010, due to the further
economic recovery, the more favorable labor market situation and the
government’s planned consolidation measures.

For the Eurozone, Ifo is projecting GDP growth of 1.0% each in 2010
and 2011. Eurozone HICP inflation is expected to average 1.3% both this
year and next, thus remaining below the ECB’s price stability definition
of inflation close to but below 2%. German consumer price inflation is
seen averaging 1.1% this year and 1.5% next year.

Ifo said it made the assumption for its forecasts that the European
Central Bank will leave interest rates at 1% until mid-2011.
Furthermore, it assumed that the euro will average around $1.20 until
the end of 2011. The oil price is put at $79 per barrel until the end of
the forecasting period.

Commenting on Europe’s public debt crisis, Ifo reckoned that the
E750 billion fiscal rescue package by the EU and the IMF is still not
large enough to assure seamless financing of embattled Eurozone member
states by 2013.

Yet, Ifo advised against a further intensification of the rescue
package, preferring instead a haircut on government bonds of ailing
member states, it said.

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

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