Bundesbank: German economy to grow 3 pct in 2010

[August 19, 2010]  BERLIN (AP) -- Germany's economy is on course to grow by about 3 percent this year after a spectacular second-quarter growth spurt, the country's central bank said as it sharply raised its growth estimate.

The Bundesbank had previously predicted that the economy, Europe's biggest, would expand by 1.9 percent this year.

In its monthly report, the bank said Thursday that Germany's economic situation remains favorable and "the economic upward movement should continue in the second half -- although risks from developments on international financial markets still exist."

Strong export growth fueled Germany's quarter-on-quarter growth of 2.2 percent in the April-June period. That powered the 16-nation eurozone to better-than-expected growth of 1 percent.

However, sentiment that the pace will be slower in the second half has been reinforced by recent signs of slowing growth in the United States and China.

"The pace of growth will normalize after the exceptionally dynamic spring," but while export growth will slow, investment by companies should strengthen and consumer spending should benefit from the recovery of the labor market, the Bundesbank said.

It added that there was no indication of any current or impending credit crunch in Germany.

The German economy contracted by 4.7 percent last year, easily its worst performance since World War II.

The second-quarter economic figures already had prompted economists to up 2010 growth forecasts to as much as 3.5 percent. Economy Minister Rainer Bruederle has said growth of "well over 2 percent" is possible.

The government's official prediction of 1.4 percent growth dates back to April, and officials say they plan to wait until the next regular revision is due in October before formally revisiting the figure.

While the economy has powered ahead, inflation has remained tame so far. Germany's annual consumer price inflation rate stood at 1.2 percent in July, and has hovered around 1 percent mark for months.

But official figures released earlier Thursday showed that the annual producer price inflation rate accelerated to 3.7 percent in July on a strong increase in oil and energy prices.

Producer price inflation -- a gauge of inflation trends in industry before they trickle through to consumers -- was up from 1.7 percent in June. Producer prices, the cost of items at factory gates, were up 0.5 percent on the month.

[Associated Press; By GEIR MOULSON]

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