"Germany's strengthened domestic economy as well as the ongoing improvement in the economic situation of the industrial countries and the gradual recovery of the euro area suggest that Germany will follow a robust growth path," Bundesbank President Jens Weidmann said Friday.
In its semiannual economic projections, the Bundesbank boosted its growth forecast for the German economy in 2014 to 1.9% from a previous estimate of 1.7% in December. The economy will likely expand a further 2.0% in 2015, or 1.8% in calendar-adjusted terms, and then 1.8%, or 1.7% in calendar-adjusted terms, in 2016, the central bank said.
Consumer price inflation in Germany, as measured by the Harmonized Index of Consumer Prices, will only reach 1.1% this year, a downward revision from an earlier forecast of 1.3% in December, the Bundesbank said. Inflation should still pick up again to 1.5% in 2015 and will be 1.9% in 2016, it added.
A lower inflation rate in the euro zone's largest member state could be cause for concern given already low inflation in the euro zone. Earlier this week, the EU's statistics agency said inflation in the euro zone weakened to 0.5% in May, its lowest level in more than four years and well below the European Central Bank's target of just below 2% over the medium term--a rate that big central banks consider optimal for their economies.
On Thursday, the ECB moved to combat alarmingly low inflation with extraordinary measures. It cut interest rates, installing a negative interest rate on bank deposits, and also said it would make initially up to EUR400 billion ($545 billion) in cheap loans available to banks later this year, providing they lend more to the private sector.
Economic data from Germany on Friday presented a mixed picture, amid the Bundesbank's more positive prognosis. Industrial production in Germany increased in April, but more slowly than expected, official data showed.
Industrial output in Germany increased 0.2% in adjusted monthly terms, compared with expectations of a 0.4% rise. The Economics Ministry said production trends remained positive, but the mild winter likely will restrain a spring recovery.
Meanwhile, German exports increased 3.0% compared with a month earlier, the country's official statistics agency said, helping Germany to reach a trade surplus of EUR17.7 billion, beating expectations of a EUR15 billion surplus.
That is good news given that weakness in many emerging markets and a cold winter in the U.S. have weighed on exports outside of Europe, Christian Schulz, an economist with Berenberg Bank, said Friday.
Still, at least in the euro zone, German imports are continuing to rise faster than exports, he added.
"Germany's growing domestic demand is helping the rebalancing in the euro zone," he said.
Write to Christopher Lawton at christopher.lawton@wsj.com and Todd Buell at todd.buell@wsj.com
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(END) Dow Jones Newswires
June 06, 2014 04:40 ET (08:40 GMT)
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