April 7, 2011 / 12:22 PM / 7 years ago

German economic outlook improves as output jumps

BERLIN (Reuters) - Germany’s economy will grow more than expected this year, influential institutes said on Thursday as better-than-expected industry data supported the view the country’s future continues to brighten.

The twice-yearly estimate from Germany’s eight top economic research institutes expected Europe’s largest economy to grow 2.8 percent in 2011, a significant step above the government’s current forecast of 2.3 percent.

The estimate is significant because it is used as the basis for the government’s own growth forecast, used to calculate the tax take estimates used for budget calculations.

“The institute’s forecasts show the gaps in growth left by the crisis will be already closed this year,” said Economy Minister Rainer Bruederle. “Germany is taking a great leap forward.”

The strong growth will also help Germany reduce its total budget deficit to 1.7 percent of gross domestic product in 2011 and 0.9 percent in 2012, the institutes added.

The report coincided with official figures from the economy ministry which showed industry output rose much faster than expected in February, partly thanks to construction activity being boosted by the early arrival of spring weather.

Output rose by 1.6 percent on the month in seasonally adjusted terms -- much higher than the 0.5 percent forecast made by economists polled by Reuters.

“The figures are much better than expected. They show that the German economy got off to a flying start this year,” said Holger Schmieding from Berenberg Bank.


Germany recovered faster than expected from its deepest recession since World War Two, and recent indicators show it is on a steady path of growth, despite some hiccups in areas like retail sales.

That picture is underpinning an overall economic upturn for the euro zone which has added to pressures on inflation and led the European Central Bank to raise interest rates on Thursday for the first time since the 2008 financial crisis.

German unemployment fell sharply for a second straight month in March to its lowest level in two decades, and wage settlements become more generous, making workers more inclined to spend.

The institutes see the trend continuing, with unemployment expected to fall by about 350,000 this year to a rate of 6.9 percent -- dropping further to 6.5 percent in 2012. The average jobless rate in 2010 was 7.7 percent.

The trend, however, will not weaken the government’s resolve to reduce debt, Labour Minister Ursula von der Leyen said.

“For the budget it means in principle we’ll be less weighed down from unemployment costs, but that does not reduce the requirement to make structural savings,” she told Reuters.

The think tanks also said in their twice-yearly report that the key risks to the German economy are oil prices, the unrest in the Arab region and the euro zone crisis.

But many economists remained positive, saying they did not see great risks from some of the issues.

“(It) suggests that neither the high oil prices nor the nuclear disaster in Japan will hurt the German economy very much,” Berenberg Bank’s Schmieding said. “The starting position was so strong that it’s very likely that we’ll only see a slight dip in the second quarter.”

The institutes also forecast that Germany’s economy will expand by 2.0 percent in 2012.

Additional reporting by Gernot Heller, Erik Kirschbaum and Stephen Brown, writing by Brian Rohan; editing by Patrick Graham

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