The Bundesbank said Thursday that Germany’s economy is on track to generate growth of around 3% for 2010 and that there is little chance of the United States going back into recession.
The assessment in the German central bank’s monthly report for August was credited with temporarily lifting U.S. stock index futures, while European shares extended gains. U.S. stock futures and European shares turned lower, however, after U.S. initial jobless claims showed an unexpected rise for last week. See Europe Markets. Read Indications.
The Frankfurt-based Bundesbank previously had forecast the German economy, Europe’s largest, would expand by 1.9% this year. The boost in the outlook comes after data last week showed a second-quarter growth rate for gross domestic product of 2.2%, the strongest quarterly rise since the reunification of Germany 20 years ago. Read about German GDP growth.
“Unsurprisingly, after recent data, the Bundesbank has shifted to a significantly more positive tone toward both the outlook for the German economy and of Germany’s budget deficit,” said Julian Callow, economist at Barclays Capital.
In keeping with other forecasts, the central bank said it expected the pace of the expansion to slow in the wake of the “exceptionally brisk growth” seen in the second quarter. A more moderate growth path for the global economy in the second half will likely cause the current surge in export growth to decelerate, the report said.
As for economic prospects across the Atlantic, the risk of the U.S. slipping into a double-dip recession in the near future could be classified as low, the central bank said.
The Bundesbank’s analysis of second-quarter growth centered on the well-known rebound in exports on the revival in global trade.
“Overall, almost three-quarters of the downturn in exports due to the crisis have meanwhile been recovered. One indication of increasing optimism among Germany’s trade partners is that, for the first time since the onset of the global economic recovery, demand for German capital goods has substantially outpaced that for intermediate goods,” the report said.
Germany’s consumer climate has been bolstered by a “very robust” labor market, which appears to have “bottomed out” a year after the trough in economic output, the central bank said.
Cautious on public finances
The central bank also said that Germany’s public finances will continue to deteriorate in the coming year due to fiscal stimulus measures but that the rise in the deficit as a proportion of GDP will be less than feared, remaining below 5%.
Indeed, the deficit could decline to 4% of GDP next year if the government restrains spending, stimulus measures are phased out and underlying dynamics remain positive. Additional deficit-tightening measures announced in June could also help reduce the German budget gap, the central bank said, while the ratio of debt to GDP will continue to rise.
“Although the general government deficit could, therefore, be brought back down below the 3% ceiling by as early as 2012, public finances will have deteriorated dramatically compared with the pre-crisis situation,” the report said.
By William L. Watts
Tags: banks, central bank, economists, economy recovery, european central bank, european markets, germany, Global Economy, money
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