Berlin lifts growth forecasts as economy creates jobs, benefits from cheap oil

[April 22, 2015] By Michelle Martin

BERLIN (Reuters) - The German government raised its economic growth forecasts to 1.8 percent for this year and next on Wednesday as Germany rides high on a tide of strong private consumption thanks to rising employment, bigger paychecks and cheap oil.

Back in January Berlin had estimated that Europe's biggest economy would expand by 1.5 percent in 2015 and by 1.6 percent in 2016.

But Economy Minister Sigmar Gabriel said the government now felt more upbeat about the economy as recent data has shown output climbed sharply late last year, while cheap oil and the weak euro are also helping the major exporter.

"The low euro exchange rate and low oil price is giving German exporters and in particular Mittelstand (small and medium-sized) companies considerably better prospects and also leads to the fact that we will continue to have sustainable growth in employment," he said at a news conference in Berlin.

The government lifted its export forecast for 2015 but said imports would climb even more sharply, meaning net trade will hardly contribute to growth in gross domestic product.

However, private consumption should boost growth as consumers, flush with cash thanks to rising wages and employment, spend on everything from smartphones to holidays, especially as cheaper oil frees up some of their money.

But while Gabriel hailed the economy's "upswing", the government is not as optimistic about growth in 2015 as leading economic forecasters, which last week almost doubled their growth forecast for this year to 2.1 percent.

Gabriel said the government was being deliberately cautious. "We think it's sensible to stay on the safe side of the growth forecasts ... We also expect risks this year which means that we certainly should not develop expectations that are ebullient or over-the-top."

He said euro zone growth remained weak and the Greek debt crisis created uncertainty that made firms less likely to invest. The Ukraine crisis also continued to pose a risk to the economic environment.

On Monday the Bundesbank took a similar view to the government, saying that strong private consumption, low unemployment and rising wages would sustain Germany's upswing for some time to come, despite a slower performance by industry recently.

(Additional reporting by Caroline Copley; Editing by Susan Fenton)

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