Germany's economic growth is set to pick up in the coming year as exports are expected to recover, the Bundesbank said Friday.
The biggest euro area economy is set to expand 1.7 percent this year and 1.8 percent next year, the bank said in its bi-annual projections, retaining earlier forecasts. The outlook for 2017 was raised to 1.7 percent from 1.5 percent seen in June.
On a working-day adjusted basis, growth was projected to be 1.7 percent in 2016 and 1.9 percent in 2017, following 1.5 percent this year.
Bundesbank President Jens Weidmann expects the healthy underlying state of the German economy to stand out even more clearly over the next two years. However, he said there was major uncertainty about the scale of the expected influx of refugees and its economic and fiscal implications.
Economists at the Bundesbank expect capacity utilization in the German economy to be above average over the next two years. "Despite the expansionary effect which immigration is having on the labor supply, the labor market will experience shortages to a growing extent, driving up wage increases," the bank said.
Inflation was forecast to accelerate as the dampening effect of crude oil prices gradually peters out. However, the bank lowered the inflation forecast for this year to 0.2 percent from 0.5 percent. The projection for next year was cut to 1.1 percent from 1.8 percent. The outlook for 2017 was also reduced to 2 percent from 2.2 percent.
Excluding energy, inflation should rise to 2 percent in 2017 from 1.1 percent this year, the bank said.
The Bundesbank attributed the lowering of the inflation outlook mainly to a "hitherto unanticipated renewed decline in crude oil prices".
Further, the bank said though the general government budget is expected to post a higher surplus and almost balance in the next two years, mounting expenditure, inter alia on account of the influx of refugees, will probably more than offset favorable cyclical factors and the lighter interest payment burden.
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