German Central Bank Cuts Growth Prediction for 2013

Acknowledging that a recovery in the euro zone would be weaker than expected, the Bundesbank said it saw signs that the euro zone economy was bottoming out, but it warned that other countries should take steps to make their economies more competitive.

“Much will depend on whether the economic situation stabilizes in the euro-area crisis countries and whether expansionary forces will gradually gain the upper hand there,” Jens Weidmann, the Bundesbank president, said in a statement.

The slightly more pessimistic outlook came a day after the European Central Bank also adjusted downward its estimate of euro zone growth for 2013. Germany has the largest economy in Europe and is crucial to the Continent’s fortunes, so the Bundesbank’s slightly gloomier view was yet more confirmation that an economic revival in Europe remained uncertain and distant.

The Bundesbank said it expected the German economy to grow 0.3 percent this year, after having forecast in December an increase of 0.4 percent. In 2014 Europe’s largest economy will grow 1.5 percent, the bank said; its previous forecast was 1.9 percent.

Germany has so far avoided the recession afflicting the rest of the euro zone, but just barely. Growth in the first quarter was 0.1 percent compared with the last three months of 2012, when the economy shrank 0.7 percent.

Unemployment, however, remains relatively low in Germany at 5.4 percent, compared with a record-high 12.2 percent for the euro zone as a whole. The low joblessness, as well as low inflation, should support consumer demand and retail sales, the Bundesbank said. Record low interest rates will also help the construction industry by encouraging investment in new homes and buildings, it said.

The Bundesbank warned, though, that Germany was dependent on the global economy and demand for its exports. Growth could be worse than expected if the global recovery proved disappointing, the bank said.

Like other national central banks in the euro zone, the Bundesbank is part of the so-called Eurosystem managed by the European Central Bank. Though it no longer controls monetary policy, the Bundesbank remains an influential institution in Germany and an important part of the euro zone monetary system. For example, it manages the payments system that businesses in the euro zone use for large financial transactions.

Article source: http://www.nytimes.com/2013/06/08/business/global/german-central-bank-cuts-growth-prediction-for-2013.html?partner=rss&emc=rss