Germany's BdB private banks' association said today its forecast of 1.4 per cent growth in Germany this year would be hard to reach after disappointing data for the last quarter of 2004.
In its monthly economic bulletin, the BdB said the European Central Bank should hold off raising interest rates until it was clear domestic demand in the euro area was picking up.
"The drop in (German) gross domestic product in the last quarter of 2004 has worsened the mathematical base for growth this year," the BdB said.
"For this reason, the current growth forecast of 1.4 per cent can only be reached if the economy accelerates very fast," the BdB said, adding it would not revise its forecast until more data for the first months of 2005 were available.
The BdB reiterated it expected the wider euro zone economy to grow 1.8 per cent this year, below its potential, and urged the ECB not to raise interest rates until it was clear the domestic economy was on a firmer footing.
"At the moment, that hardly seems likely before the second half of the year," the BdB wrote.
"The timing of a possible tightening of rates should be pushed further into the future if the euro rises sharply again, because any appreciation would help dampen monetary growth."
The banking association said it was also worried the rally in bond markets may have gone too far and may lead to a misallocation of investors' capital. The economy could be hurt in the "worst case" of a sharp correction, it wrote.