Bundesbank raises 2014 growth outlook for German economy

Germany's Bundesbank raised its growth forecasts for the euro zone's largest economy this year on Friday, highlighting the increasing divergence between the currency bloc's member countries.

In bi-annual projections, the bank said it expects growth of 1.9 per cent this year, unadjusted for calendar effects, compared with a December forecast of 1.7 per cent.

The Bundesbank left its 2015 growth forecast unchanged at 2 per cent and saw growth of 1.8 per cent in 2016.

Germany has been a major driver of the euro zone recovery, which lost some momentum last month. On Thursday, the European Central Bank cut interest rates to record lows and launched a batch of measures to pump money into the sluggish euro zone.

"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 suggests that Germany will follow a robust growth path," Bundesbank president Jens Weidmann said in a statement.

He said a tighter labour market in the future due to demographic change would impede growth, however, adding that “in light of these changes, measures such as the option of drawing a full pension at 63 will not help”.

Weidmann added: “Heightened geopolitical tensions or a renewed flare-up of the crises in the euro area would dampen GDP growth not only through the external trade channel, but also by affecting confidence.”

Reuters