Germany’s Bundesbank lowers inflation forecasts

Germany’s Bundesbank lowered its inflation forecasts for the next two years and kept its growth outlook unchanged, saying the country’s economy remains “healthy.”

The Frankfurt-based central bank cut its projection for inflation in 2015 to 0.2 percent from 0.5 per cent predicted in June and reduced its 2016 forecast to 1.1 per cent from 1.8 per cent. It sees prices rising 2 per cent in 2017.

The German economy is seen expanding 1.7 per cent this year, 1.8 per cent next year and 1.7 per cent in 2017. Europe’s largest economy is benefiting from “lively” domestic spending even as its traditional growth-driver, an export-oriented manufacturing sector, is suffering from the uncertainty in emerging markets such as Brazil and China.

Further stimulus announced on Thursday by the European Central Bank is set to boost demand both within the country and in the euro area, Germany's largest trading partner.

“With export markets outside the euro area expected to rebound and economic growth within the euro area gaining a little more traction, the healthy underlying state of the German economy should stand out even more clearly over the next two years,” the Bundesbank said in a report published on Friday.

“Downside risks to economic growth would arise if the current sluggish dynamics in a number of emerging-market economies were to worsen.”

Data on Friday showed that German factory orders rose for the first time in four months, climbing more than economists anticipated.

The ECB on Thursday raised its 2015 growth outlook for the 19-nation euro area to 1.5 per cent from 1.4 per cent predicted in September, and forecast economic expansions of 1.7 per cent in 2016 and 1.9 per cent in 2017.

It lowered its inflation forecasts to 1 per cent in 2016 and 1.6 in 2017. Prices are seen rising 0.1 per cent this year.

Bloomberg