–Adds Comments From EconMin Press Conference To Story Sent At 09:30 GMT

BERLIN (MNI) – The German government left its forecast for German
economic growth this year unchanged from the +1.4% it projected at the
start of the year.

For the coming year, the government forecast a GDP growth rate of
+1.6%, its first 2011 forecast. For the years 2012 to 2014, the
government projects annual average GDP growth of +1.75% each.

At a press conference on presenting the government forecasts,
Economics Minister Rainer Bruederle said GDP likely declined slightly in
the first quarter of 2010 due to the negative effect of the harsh winter
on construction activity.

“Yet, as experience shows, many construction projects will likely
be caught up in the coming months,” the Minister remarked.

The same goes for the economic effect of the recent disruption of
air traffic, Bruederle reasoned. The negative fallout will be limited
and production disruptions will likely be caught up in the further
course of the year, he said.

The German economic recovery “is supported by the global economic
pick up and increasingly also by domestic demand,” Bruederle said.
Exports are projected by the government to grow 6.8% this year and 7.2%
next year, while domestic demand is seen increasing 0.4% in 2010 and
0.8% in 2011.

“This year consumption and investments are profiting significantly
from the economic and fiscal policy support measures,” Bruederle said.
He added that the government will gradually and carefully exit from
these crisis-related measures.

He noted that due to tax cuts the net income of employees will
likely grow by 2.5% this year — the strongest increase in nine years.
Over the course of the year, that should more than offset the dampening
effect of the expiration of the government’s car scrapping scheme, he
said.

Still, the government sees private consumption declining by 0.6%
this year and growing only by a modest 0.6% next year. Government
consumption is tabled at +1.6% in 2010 and +0.5% in 2011.

Regarding the Germany labor market, Bruederle spoke of a “job
miracle.” The government expects annual average unemployment to stagnate
at 3.4 million both this year and next. Businesses are reacting to the
crisis by lowering working time of their employees, not by cutting their
staff, the minister noted.

Investment spending is seen recovering this year and next. The
government expects equipment investment to rise by 3.1% in 2010 and by
3.7% next year, while construction investment is tabled at +1.0% and
+0.1%, respectively.

Inflation is expected to stay moderate. The government projects it
to average 1.3% this year and 1.4% next year.

Bruederle said the financing conditions for businesses remain tight
but the danger of a broad credit crunch is declining. “A drastic
curtailing of credit supply seems currently not likely anymore,” he
reckoned.

Still, the Minister cautioned that the government needs to eye
credit developments carefully “because a bottleneck could significantly
dampen our [GDP] growth.”

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

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