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German economy set for post-pandemic bounce in growth and prices, Bundesbank says

06/11/2021 | 04:08am EDT
FILE PHOTO: Closed shop due to the COVID-19 pandemic in Munich

    * Bundesbank raises growth and inflation forecasts
    * Says price surge might affect people's behaviour

    FRANKFURT, June 11 (Reuters) - German output is rebounding
from its pandemic-induced slump and inflation could rise faster
than currently expected, potentially affecting behaviour in the
economy, the German central bank said on Friday.
    The Bundesbank raised its growth and inflation forecasts for
this year and the next, assuming that the coronavirus outbreak
would be contained quickly and durably by the vaccination
campaign and that restrictions will soon be relaxed.
    It now expects the German economy to reach pre-pandemic
levels as soon as next quarter, growing by 3.7% this year, 5.2%
next year and 1.7% in 2023. 
    "The German economy is overcoming the pandemic-related
crisis," said Bundesbank President Jens Weidmann.
    The German central bank also raised its forecasts for
inflation for this year and the next, warning there were still
"upside risks".
    It now saw inflation at 2.6% this year, which would be the
highest since 2008 and well above the European Central Bank's
target of price growth "below but close to 2%".
    But the Bundesbank played down the significance of the
surge, blaming it mainly on energy prices and tax effects.
    Without those, inflation would stand at just 1%, in line
with last year and well below 2019's level, the BuBa said. 
    But it still warned that the sudden surge in prices, which
will see inflation touch 4% in late 2021, might affect
perceptions after a long period of low inflation.
    "The exceptionally high inflation rates, by German
standards, projected for the second half of 2021 could
ultimately shift economic agents’ inflation perceptions and
expectations," it said.
    "As a result, wage and price-setting behaviour could change
and exert further inflationary pressure. This would especially
be the case if headline price inflation in the near future were
to be even higher than estimated here."
    German's consumer price index hit a 10-year high of 2.4% in
    But inflation, normally a hot topic in a savings-oriented
country, has not so far become an issue in the election
campaign, with all major parties agreeing with the generally
hawkish Weidmann's view that the jump is likely to be temporary.
    The ECB promised to keep ample stimulus flowing on Thursday
despite the brighter outlook, although three policymakers
dissented with that decision at the meeting.
                     2021        2022        2023
 GDP growth (%)      3.7 (3.0)   5.2 (4.5)   1.7 (1.8)
 HICP inflation (%)  2.6 (1.8)   1.8 (1.3)   1.7 (1.6)
 (December forecasts in brackets)    

 (Reporting By Francesco Canepa in Frankfurt and Michael
Nienaber in Berlin;
Editing by Balazs Koranyi and Kevin Liffey)

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
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