The recovery of the German economy has evolved into a broad-based upturn. Overall production capacity utilisation has returned to normal levels. Enterprises are hiring new staff and buying new equipment in preparation for a further expansion of their activities. Residential housing construction is receiving new stimuli. Moreover, household consumption spending is rising. The rate of wage increase is accelerating, but remains compatible with macroeconomic stability. There has been a further reduction in structural unemployment, and Germany is becoming increasingly attractive for foreign workers. The prospects of the German economy experiencing a lengthy period of expansion are therefore rising. This should considerably facilitate the urgently needed consolidation of public budgets. This is reported in the Deutsche Bundesbank’s new projection for 2011 and 2012.

Macroeconomic output

According to the Bundesbank projection, price-adjusted gross domestic product (GDP) will rise by 3.1% in 2011 and 1.8% in 2012.

Labour market

Employment is likely to go on rising over the forecast horizon, while unemployment should continue to fall. In 2012, the official unemployment figure is likely to be well below three million. The unemployment rate could decline to 6.5%.

Price developments

Over the forecast period, consumer prices are likely to rise fairly sharply, mainly owing to much higher energy prices but also as a result of increasing overall capacity utilisation. On average, consumer prices could increase by 2.5% in 2011 and 1.8% in 2012.

Risk assessment

Downside risks to the Bundesbank projection stem from the persistent uncertainties in the financial markets due to the fragile position of public finances in a number of industrial countries.

The macroeconomic projection for Germany, which was completed on 24 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 2011, may be found on the Bundesbank website at http://www.bundesbank.de/presse/presse_aktuell.en.php.