Bundesbank cuts GDP and CPI forecasts

The German central bank said it now expects the economy to grow by 1.7% this year, down from a previous forecast of 1.8%. For 2017, it expects growth of 1.4%, down from 1.7%. It forecasts growth of 1.6% for 2018.

Meanwhile, inflation is expected to remain subdued, with consumer prices seen up just 0.2% this year, rising to 1.5% in 2017 and 1.7% the year after. Excluding energy, HICP inflation is likely to climb from 1% in 2016 to 1.8% in 2018.

“Compared with the projection from December 2015, expectations for economic growth in 2016 and 2017 have been slightly lowered, while inflation projections have been brought down significantly,” the Bundesbank said.

“The revision of expected price developments was attributable in part to lower than expected core inflation, but above all to the unexpected renewed fall in crude oil prices. Fluctuations in these prices continue to present a risk, particularly to the inflation forecast, but on the whole appear balanced, as do the risks to economic growth.”

The central bank said the dampening effect of the renewed fall in the prices of crude oil and other commodities at the start of this year should largely vanish as of 2017, meaning that growth in domestic wage costs is likely to once again manifest itself more visibly in consumer prices.