Bundesbank: Estimations for further growth of the German Economy

The German National Bank(Bundesbank) revised upwards its estimations for further growth of the German Economy after the impressive performance in the second quarter where the largest Eurozone economy grew by the fastest pace of the last 20 years.

In its monthly report, Bundesbank revised to 3% its economic growth rate forecast for the 2010, compared to the previous estimation of 1.9%.
According to the German central bank, economic conditions remain favorable as the accelerated rates of growth will continue in the second half. However, the Central bank notes that there are still risks arising due to the behavior of the international financial markets.

The increase in export activity helped the German economy to grow by 2.2% in the second quarter, contributing to a better – than expected – growth of the Eurozone. Nevertheless, there are indications that the growth rates will decline during the second half in Europe, U.S. and China.

Bundesbank’s report notes that “After the extremely high pace, growth will normalize, as it is expected a decline in exports. However, business investments will increase as the labor market recovers”.

Furthermore, the German central bank warned of possible deficiencies in the proposed European Union legislation designed to prevent another debt crisis similar to the one in Greece.
In a sign that German workers are encouraged by the recovery and increased corporate profitability, the IG Metall – the largest labor union in Germany which represents the workers in the steel sector – gears up to seek increased monthly salaries between 4.5% to 8%.

Although the number of workers in the steel sector in Germany is approximately 110,000, the request of the IG Metall exceeds the 4.5% which was requested last year with a final agreement on a 2% increase. If IG Metall demands pass, then other unions will claim higher wages for workers as well, threatening to undermine the competitive advantage of the country.