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Germany facing labour market bottlenecks - Bundesbank
December 9, 2016 / 9:00 AM / a year ago

Germany facing labour market bottlenecks - Bundesbank

FRANKFURT (Reuters) - Germany’s economy is on a solid upward path but weakening consumption growth and labour market bottlenecks could constrain its expansion in the coming years, the country’s central bank said on Friday.

A sign reads "Federal Reserve Bank (Bundesbank) bunker Cochem - 1964-1988" prior to the bunker's official opening to the public in Cochem, Germany, March 18, 2016. REUTERS/Kai Pfaffenbach

The state budget, already in the black, will continue to generate surpluses without new spending measures and state debt could fall to 60 percent of GDP, the government’s coveted level, by 2019, the Bundesbank said in its fresh biannual economic projections.

The euro zone’s biggest economy has been the engine of the bloc’s recovery and the European Central Bank has repeatedly called on Germany to spend more to give the still fragile expansion a boost.

But the government, facing elections next fall, has rejected those calls, making fiscal prudence a key plank in its campaign.

“The highly favourable setting for household consumption at present looks set to turn slightly gloomy in the years ahead as demographic constraints soften employment growth and higher rates of inflation erode consumers’ purchasing power,” the Bundesbank said.

The economy is likely to face increasing labour supply shortages with the working age population continuing to shrink and even the influx of refugees is likely to have only a minor impact on the labour market in the coming years, the Bundesbank said.

Foreign trade, held back by weak global demand, will slowly pick up pace but this will not be enough to fully offset the slight downturn in domestic activity, the Bundesbank added.

Still, it lifted its adjusted GDP growth forecast to 1.8 percent for this year and next from 1.6 percent predicted in June, as the euro zone has proved to be more resilient to recent shocks than feared.

Growth will then slow to 1.6 percent in 2018 and 1.5 percent in 2019, it added.

Reporting by Balazs Koranyi; Editing by Mark Trevelyan

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