Germany lowers 2013 growth forecast, but says recovery is starting

Lingering recession in the 17-nation eurozone and cold weather dragged down growth earlier this year.

June 7, 2013   by The Canadian Press

BERLIN – Germany’s central bank on Friday lowered its growth forecast for this year but said a recovery had already started, as evidenced by a rise in export and industry figures in Europe’s largest economy.

The lingering recession in the 17-nation eurozone and the unusually cold weather in Germany dragged down growth over the first few months of the year, the Bundesbank said. It now expects the economy to grow by only 0.3% in 2013, down from its December forecast of 0.4%.

But it noted that the economy is already showing signs of recovery, which it said would lead to robust economic expansion in 2014.

“The economic growth should turn out quite strongly in the second quarter because a good part of the weather-related production shortfalls will be made up for rapidly,” it said.

Private consumption should also be a driver of growth this year, thanks to low unemployment, decreasing inflation and rising wages, the Bundesbank added.

The central bank maintained its 2014 growth forecast of 1.5%, but acknowledged significant downside risks remained.

“Much will depend on a stabilization of the eurozone’s crisis-countries,” it said.

In an upbeat signal, Germany’s exports rose by 8.5% in the year to April, to $124 billion, amid strong overseas demand, according to official data released Friday. Exports to European nations were up by about 5%; those to nations outside the 27-nation bloc were up by a strong 13.6%.

Germany is one of the world’s biggest exporters – with products ranging from machinery to luxury cars – which helped the country avoid a recession despite the economic gloom in much of Europe.

Industrial production in April was also up, rising by 1.8% on the month in seasonally adjusted terms, powered by a strong up-tick in the construction sector, the Economy Ministry said. It had expanded by 1.2% in March.

“The outlook for a good second quarter result have therefore further improved,” it said.

Analysts also said the industrial production figures came as another sign of a recovery picking up speed.

“The third consecutive solid rise in manufacturing output clearly underpins an upward trend in industrial activity after the dip in autumn-winter,” said UniCredit bank’s Alexander Koch.

Jennifer McKeown of Capital Economics said the monthly rise was much better than the consensus forecast of no change, adding to hopes that the recovery will gain pace in the second quarter.

The government expects the economy to grow by 0.5% this year and 1.6% in 2014. It grew by 0.7% last year – much slower than in the two previous years but still a positive performance compared with many other European countries. The eurozone is currently in its second year of a mild recession.

Meanwhile, Canada’s finance minister Jim Flaherty says the ongoing economic issue in Europe keep him up at night.

©The Canadian Press

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