German economy could grow more than 3.0%: IMF

17th May 2011, Comments 0 comments

The International Monetary Fund said Tuesday that the German economy could grow by more than 3.0 percent this year, considerably more than the current official forecast of 2.5 percent.

"The proficiency of its industry, along with a sizeable, internationally- coordinated fiscal stimulus and financial sector stabilization measures, helped Germany establish a recovery with over 3.0 percent GDP growth in 2010 and, possibly, in 2011," the IMF said in a report.

Economists at some commercial banks have also given 2011 forecasts of a 3.0 percent increase in gross domestic product (GDP) for the largest European economy, but this was the first by a major international body.

"The German economy and employment are above levels before the onset of the Great Recession, an achievement realized by only a few advanced economies," the IMF noted.

In the first quarter of 2011, economic activity expanded by 1.5 percent from the previous three-month period provisional data showed last week, well above forecasts, though the rate is tipped to diminish later this year.

Output is now at a level last seen before the global economic crisis in 2008, the national statistics office said.

Strong domestic demand has helped boost activity, which is good news for the traditionally export-orientated economy.

"This would also be good for Europe and the global economy. Similarly, a robust German financial system is important for both German and global financial stability," the IMF said.

German regional banks known as Landesbanken represent a potential weak spot because some have still not fully recovered from disastrous investments that collapsed during the global financial crisis.

"German banks remain highly leveraged, achieve low profitability, and the large banks remain highly dependent on market funding," the report also noted.

"These vulnerabilities apply with particular force to certain financial institutions, most prominently some Landesbanken," it said.

© 2011 AFP

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