Bundesbank expects only modest German growth

Bundesbank expects only modest German growth
Photo: DPA
The Bundesbank said on Monday it expected only modest growth for Germany in the coming months following the scorching rate of expansion the world’s third-largest economy notched in the first quarter of 2008.

Germany’s central bank said in its monthly report that the global financial crisis, the strong euro and high oil prices would hamper exports and the prospects for growth. But the German economy still had a “solid fundamental dynamic” underpinning its expansion.

Many economists are forecasting Germany will see its third consecutive year of growth over 2 percent after chalking up 1.5 percent growth in the first three months of the year – the most in twelve years. But the Bundesbank is so far sticking with its forecast of 1.9 percent for 2009.

The cracking performance in the first quarter “will not continue in the future by itself,” since there were exceptional factors boosting growth. The bank’s report said the mild winter almost entirely eliminated the construction industry’s traditional slowdown, and an early Easter this year helped increase retail sales. Despite the cautionary tone, the Bundesbank said the good start this year showed “what potential the German economy still has after an almost four year upswing.”

But the central bankers also pointed out that even though Germany has been growing in recent years, it is still falling behind the United States in terms of absolute wealth.

In 2007, per capital income in America was some 27 percent higher than in Germany. That puts Germany only slightly ahead of the euro-zone average of $28,200 (€18,092), which is 30 percent lower than in the United States.

“The gap is therefore still as large as it was towards the end of the 1990s,” said the Bundesbank. “The income gap comparison between the USA and Germany also hasn’t become any smaller.”