Bundesbank reduced forecast for German economic growth and inflation in 2016, according to the new analysis showing the struggle of the Eurozone to increase consumer prices. The Frankfurt-based German Central Bank cut its forecast for inflation in 2014 to 0.9% compared to 1.1% according to the June forecast. The institution reduced its forecast for growth of real gross domestic product this year to 1.4% from 1.9%. Meanwhile the German economy is supported by consumer spending and record low unemployment, growth continues to be hampered by the uneven and fragile recovery of the euro area.
However, Bundesbank president Jens Weidmann is quite optimistic. In his words, there is a reasonable hope that the current phase of weakness is only temporary. Weidmann moved its optimistic forecast a generally good state of the German economy. “And it is not only positive for the internal situation, but also allows you to see the chances for foreign markets”, he said in the report.
According to Bundesbank the inflation will be 1.1% in 2015 and 1.8% in 2016. The German GDP is expected to expand by 1% in 2015. So far, expectations were for growth of 2%. According to the bank in 2016 the economy with grow by 1.6%. These expectations, however, do not reflect recent declines in oil prices, warn bankers.
“If crude oil prices remain at this low level for an extended period of time, economic growth in 2015 and 2016 may prove to be between 0.1 and 0.2 percentage points higher than forecast”, writes Jens Weidmann in the report.
Growth in consumer prices in the Eurozone slowed to 0.3% in November, which is five-year low and well below the ECB target for inflation of just under 2%. On Thursday, the ECB cut its forecasts for inflation and economic growth in the euro area by 2016. The risks for the region are deteriorating political relations with Russia after the European Union imposed sanctions against the country because of its involvement in the Ukrainian crisis.
Separate data from Germany point to a surprising growth in factory orders in October, which grew with 2.5% compared to the previous month. Orders in September recorded a revised growth of 1.1% (0.8% according to preliminary data).