Deutsche Bundesbank projects fastest expansion since reunification

Deutsche Bundesbank, in its new projections for 2011 and 2012, stated (03-Dec-2010) the recovery in the German economy will continue in the next two years following the impressive catching-up process in the current year. The Bundesbank has raised its forecast for German economic growth this year, projecting the fastest expansion since data for a reunified country began in 1992. The upturn will also become increasingly broad-based while inflation remains within bounds compatible with stability. Details include:

• Macroeconomic output: According to the Bundesbank projection, price-adjusted gross domestic product (GDP) will rise by 2.0% in 2011 and by 1.5% in 2012 after an estimated increase of 3.6% in the current year. Previous estimates from Jun-2010 were anticipated growth of 1.9% in 2010 and 1.4% in 2011 although the Bundesbank in Oct-2010 stated it was anticipated growth of over 3% in the current year. Exports will remain the main driving force behind the upturn, although external impulses will have a growing impact on domestic activity. Investment in machinery and equipment as well as in construction is also being given a boost by low interest rates, while private consumption is benefiting from growing employment and higher wages;
• Labour market: Employment is likely to go on rising over the forecast horizon, while unemployment should continue to decline. In 2012, the official unemployment figure is likely to fall below three million. The unemployment rate could decline from 7.5% at present to 6.9%;
• Price developments: Over the forecast horizon, consumer prices will probably increase on a scale that is compatible with stability. On average, consumer prices could go up by 1.7% in 2011 and by 1.6% in 2012;
• Risk assessment: Downside risks in terms of the projection originate from the persistent uncertainties in the financial markets due to the fragile position of public finances in a number of industrial countries.