German Bundesbank expects economy to return to normal this year

The German central bank has said the global economy is likely to continue on its upward trend in the third quarter of the year, although growth will be constrained by structural growth problems and tightened monetary policy in several emerging market economies and expectations that the US Federal Reserve may tighten policy sooner than expected (release).

The Bundesbank added that the expansion in the German economy in the second quarter (flash estimate for real GDP up 0.7 per cent quarter-on-quarter) is likely to have brought it back to a "normal" level of productivity.

In the second half of 2013, economic growth in Germany is likely to return to normal and steady rates. The expected increase, more or less equalling that of potential growth, will ensure that capacity utilisation remains good; it is doubtful, however, whether this will be enough to noticeably revive investment activity.

Additional demand for German industrial enterprises’ products is largely coming from third countries, where firms are tending to expand their production capacities. This is curtailing fixed capital formation at domestic production sites and the growth of exports to third countries.

Domestic investment is unlikely to pick up discernibly until there is a long-term improvement in the economic prospects for Germany’s neighbours and the uncertainty surrounding economic policy is further checked through suitable measures to combat the debt crisis in the euro area.

The report added that the government budget looks set to be virtually unchanged this year and the fiscal policy stance more or less neutral. This is unlikely to change next year, either, although there is uncertainty surrounding the debt crisis and policy following the general elections in September.