KfW Economic Compass: German economy in recovery mode

Frankfurt (ots) -

   - KfW predicts GDP growth of 0.6% this year and 2.0% in 2014
   - Corporate investment set to rise in 2014 for the first time in 
     three years
   - Economic risks lie primarily in Europe 

The German economy is in recovery mode. After a meagre 0.6% (price and calendar-adjusted) growth in GDP this year, it looks set in 2014 to rise by more than the long-term average for the first time in three years.

"Germany is stepping up a gear. We expect GDP to increase by 2% in 2014, and therefore confirm our earlier forecast," says Dr Jörg Zeuner, Chief economist of the KfW Group, who presented the latest KfW Eco-nomic Compass in Frankfurt today. "For some time now, residential con-struction and consumer confidence have made solid growth contributions to domestic demand. This will not change fundamentally in 2014. How-ever, the international horizon is now also brightening up."

Emerging economies will continue to grow at a high rate, albeit without matching the record figures of previous years. By contrast, industrialised nations which are key export destinations for Germany like the United States and Britain are clearly picking up momentum and are thus currently the most important driving force of the global economy.

One particularly pleasing development from Germany's point of view is that its domestic European market has finally overcome the recession. Since last summer, the Eurozone has begun charting an - albeit sluggish - expansionary course which more and more countries are joining. Re-form countries are seeing the first positive effects of painful measures, thus giving people a slightly more optimistic view of the future again. This stabilisation should continue in 2014, giving German exports the backing they need and leading to rising capacity utilisation for our companies. To-gether with lower uncertainty and further low interest rates, this will give German corporate investment a fresh impetus. According to KfW esti-mates, it should rise by 5% in real terms in 2014, the first increase in three years. Even so, we are still far from overcoming the structural weakness with regard to investment. As such, pre-crisis levels will still be out of reach in 2014.

The greatest risk for poorer-than-expected growth lies in an unexpected yet still possible setback in Europe, where the ongoing recovery could be slowed down by financial bottlenecks in reform countries, for example. Potentially destabilising political debates about the common currency are still just as impossible to rule out as are recurring doubts about the sus-tainability of the consolidation, which could fuel renewed tension on the financial markets. According to Zeuner, "In this case, our exports and cor-porate investment would probably not recover, and unemployment would rise. On the other hand, Europe offers opportunities since the potential for recovery is significant after the steep fall." Consumer demand in particular could provide a positive surprise since some people in southern Europe are sitting on considerable wealth. Were they to be more confident about the future again, they could be encouraged to reduce their savings ratio.

Further information on the KfW Economic Compass and a video sound bite of Dr Jörg Zeuner can be found at www.kfw.de/newsroom.


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