BERLIN (MNI) – The Organization for Economic Cooperation and
Development has raised its forecast for German GDP this year and next to
+3.6% and +2.5%,respectively, from the +2.0% and +2.1% figures it had
projected in May, according to the OECD’s latest Economic Outlook,
published Thursday.

For 2012, the organization is predicting GDP growth of 2.0%.

On a workday-adjusted basis, the OECD put German GDP in 2010 and
2011 at +3.5% and +2.5%, respectively, up from +1.9% and +2.1%. For 2012
it forecast workday-adjusted GDP growth of 2.2%.

“The outlook over the projection horizon is fairly bright,” the
OECD remarked. The pre-crisis GDP level will be reached in the course of
2011, it predicted.

Economic growth is likely to remain dynamic during 2011 with world
trade projected to remain on an upward trend, the report stated. In
addition, private consumption growth is expected to be stronger than
usual at this stage of the upswing, owing to continued employment gains
and solid wage increases.

The improved financial situation of households and favorable
financing conditions should contribute to growth in residential
investment, the organization predicted. Increased capacity utilization
will underpin investment growth going forward, it predicted.

Nevertheless, the output gap is set to remain in negative territory
over the whole projection horizon, thereby dampening inflationary
pressures, the OECD said.

Notwithstanding the growth of domestic demand, the current account
surplus is set to rise to 7% of GDP in 2012, the organization forecast.
“A more balanced growth outcome could be achieved by implementing
structural reforms that would raise domestic investment spending,” it
said.

In view of the ageing of the population and the low share of
tertiary graduates by OECD standards, reforms of the education system
and increased immigration of high-skill workers should have priority. In
addition, reducing the degree of regulation of some segments of the
services sector would be beneficial, it advised.

Government finances are benefiting from the strong cyclical
recovery, although fiscal stimulus measures will lead to an increase of
the general government deficit this year, the OECD remarked. It tables a
deficit of 4.0% this year, 2.9% in 2011 and 2.1% in 2012.

From 2011 onwards the government is planning ambitious
consolidation measures in order to fulfill the structural deficit target
set by the country’s new fiscal rule, it observed. “These consolidation
policies should be coupled with structural policies to raise the
potential growth rate,” the OECD advised.

“The risks surrounding these projections are broadly balanced,” the
report remarked. Developments in world trade pose risks in both
directions. Domestically, private households may choose to lower their
saving rate, boosting private consumption further. Also, business
investment may turn out to be stronger than projected.

On the negative side, financial conditions, notably the situation
in the banking sector, may deteriorate with adverse consequences for
investment spending, the OECD said.

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

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