New Bundesbank projection: German economy on path to recovery

The outlook for the German economy has brightened perceptibly in recent months. Supported by extensive monetary and fiscal policy stimuli, a process of recovery began in the second quarter of 2009 and is expected to continue over the next two years. The price climate remains benign. These are among the findings of the Deutsche Bundesbank’s latest projection for 2010 and 2011, which was published today.

Macroeconomic output

According to the Bundesbank’s projection, real gross domestic product (GDP), after contracting 4.9% this year, will rise by 1.6% in 2010 and 1.2% in 2011. The effects of government stabilisation measures are likely to wane over the projection period. By contrast, endogenous market stimuli will probably gain in importance. These will stem, first, from exports and later from a pick-up in business investment as well as growing private consumption. Capacity utilisation in the economy as a whole will recover gradually. Nevertheless, there is still likely to be perceptible capacity underutilisation in 2011.

Labour market

The labour market response to the sharp contraction of economic activity has been extremely subdued to date. The key factor in this was that enterprises made use of numerous mechanisms for adjusting working hours to the lower demand while avoiding redundancies where possible. Further job losses are likely on balance over the projection period, albeit not on the scale that had been widely feared. Overall, the official unemployment figure could rise from 3.4 million this year to 3.8 million in 2010 and 4.2 million in 2011. This corresponds to an unemployment rate of 10.1% in 2011.

Price developments

Consumer prices will probably rise moderately over the projection horizon as a whole, with the downward corrections to energy and food now having ceased to be a factor. On average, consumer prices are expected to go up by 0.9% in 2010 and 1.0% in 2011, compared with 0.3% this year.

The macroeconomic projection for Germany, which was completed on 20 November, 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 December 2009, may be found on the Bundesbank website at