MercoPress. South Atlantic News Agency

German surprise rebound confirmed by cautious Bundesbank

An optimistic third quarter in anticipated for Europe’s main economy

German economic growth is likely to gain traction in the coming months, the nation's influential central bank, the Bundesbank, said Thursday after Europe's biggest economy unexpectedly climbed out of recession during the second quarter.

“Based on leading indicators, a further marked pick-up in overall output is possible in the third quarter from a low level” the Bundesbank's latest monthly bulletin said as a pickup in exports and factory orders helps to drive growth in the nation.

The release of the Bundesbank's bulletin came just one week after official data showed the German economy expanding by 0.3% in the second quarter as a result bringing to an end what has been the country's steepest economic decline in more than 60 years.

Helping to underpin the pickup in the German economy was Chancellor Angela Merkel's government's 85 billion Euro fiscal stimulus plan and a round of hefty cuts in global interest rates. Analysts had forecast a 0.2% contraction in Germany the three months to the end of June.

In the meantime, a batch of key German economic data have surprised on the upside with exports racing ahead by 7% in August as foreign demand gained ground for the goods from the world's leading export nation.

The pickup in foreign demand represented “an important precondition for a further gain in corporate confidence” the notoriously cautious Bundesbank said in its bulletin.

But underscoring the current fragile state of the German economy, the Bundesbank warned “a high degree of uncertainty continues to prevail”.

More specifically economists have warned of the threat posed to an upturn by rising unemployment and a protracted period of falling prices.

Consumer prices in Germany fell 0.5% in July to record their first annual drop in more than two decades, the statistics office said this month.

But like many private economists, the Bundesbank expects inflationary prices to return in the coming months. Economists have already started to revise up their economic growth forecasts for Germany.

Instead of a previously projected contraction of six per cent plus this year, many economists now expect the German economy will shrink by less than 5% in 2009 as growth gains momentum during the second half.