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Germany's central bank ups growth forecast to 1.7% in '14

BERLIN--Germany's central bank raised its growth forecast for the German economy next year to 1.7 percent on Friday, citing expanding domestic demand in its upbeat assessment.

The forecast was up from the Bundesbank's prediction made in June of 1.5 percent gross domestic product growth for 2014 based on an easing of the wider eurozone crisis.

In 2015, it said, the growth rate would accelerate to 2.0 percent.

“The German economy is in good shape,” said the bank's president Jens Weidmann. “The unemployment rate is low, employment is rising and wage growth is returning to normal.”

The central bank also raised its GDP growth projection for Germany for this year to “no more than 0.5 percent,” from 0.3 percent six months ago.

In its report, the bank said the German economy, the biggest in the eurozone, had picked up momentum after being battered in recent years by the turmoil of the global and European financial and economic crises.

“Aggregate output is expanding at a faster pace again after an interruption due to the escalation of the sovereign debt crisis in the euro area,” it said.

“The driving forces are changing, however. While external impulses had the upper hand following the economic and financial crisis, domestic economic activity has come to the fore recently.”

Weidmann also pointed out that low interest rates are “supporting private consumption and driving housing construction.”

By contrast, he said, external trade has been weakening, but as the global outlook brightens “there should ... also be a pick-up in exports and, in their wake, an upturn in corporate investment and imports.”

Weidmann predicted that the government will achieve a budget surplus of just under half of one percent of GDP in 2015, but he stressed that this does not factor in policy changes under a new coalition agreement struck since Sept. 22 elections.

Chancellor Angela Merkel's victorious conservatives have since the vote agreed on a series of policy compromises to strike a 'grand coalition' deal with the centre-left Social Democrats, including an 8.50 euro (US$11.50) hourly nationwide minimum wage from 2015.

Joining critics of the minimum wage who argue it is inflexible and will cost jobs, Weidmann said that “a number of the prospective measures in the coalition agreement, such as the minimum wage, risk harming the efficiency of the labor and goods markets.”

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A construction employee works on the site of the European Central Bank's (ECB) new headquarters in Frankfurt am Main, central Germany on Oct. 31. The building is expected to be completed by the middle of 2014.

(AFP)

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