After a sluggish fourth quarter of 2009/first quarter of 2010, the cyclical recovery of the German economy has accelerated markedly. Since the beginning of spring, the positive impetus generated by the global economy has increasingly prevailed. Inflation remains subdued despite the depreciation of the euro. This was reported in the Deutsche Bundesbank’s most recent forecast for 2010 and 2011, published today.

Macroeconomic output

According to the Bundesbank projection, the price-adjusted gross domestic product (GDP) will rise by 1.9% in 2010 and by 1.4% in 2011. The main drivers will initially be exports and stimuli from the inventory cycle, whereas the importance of government stabilisation measures will gradually wane. In the medium term, business investment will pick up, and private consumption, too, is likely to increase again.

Labour market

Although unemployment could rise somewhat over the forecasting horizon, this does not alter the finding that the German labour market has weathered the most difficult post-war economic crisis extremely well. The official unemployment figure in 2011 could be 3.4 million, which is equivalent to an unemployment rate of 8.0%.

Price developments

Despite the strains caused by higher crude oil prices and the depreciation of the euro, there will probably be only a moderate rise in consumer prices during the forecasting period. On average, consumer prices are expected to go up by 1.2% in 2010 and by 1.6% in 2011.

Risk assessment

The current projection assumes that negative confidence effects resulting from the substantial deterioration of public finances in a number of countries will remain limited. However, this depends on credible measures being taken to achieve sustained fiscal consolidation. Apart from that, it is conceivable that the German economy could benefit from the global recovery to a greater extent than is assumed here.

The macroeconomic projection for Germany, which was completed on 27 May, also represents the Bundesbank’s contribution to the Eurosystem’s biannual staff projections. It is based on common or harmonised assumptions and an identical projection horizon.

The Bundesbank projection, which also appears in the Monthly Report for June 2010, may be found on the Bundesbank website at: http://www.bundesbank.de/presse/presse_aktuell.en.php