Going for Growth

German GDP forecasts hiked on weak euro

Anmar Frangoul | Special to CNBC.com
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Germany's economic growth is expected to come in much higher than expected this year, Munich's influential Ifo Institute said Thursday, as the euro zone's strongest economy continues to storm ahead.

The think tank said German gross domestic product (GDP) was now expected to expand by 2.1 percent in 2015. In the group's autumn forecast last year, growth of just 1.2 percent was expected.

Commenting on the new forecast, the Ifo's Timo Wollmershauser said: "The low oil price is leaving Germans more money to spend, while the weak euro is boosting exports."

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The country's unemployment is also expected to fall, from an already-low 6.7 percent in 2014 to 6.3 percent in 2015 and 5.9 percent the year after.

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Germans go shopping

Domestic consumption had been seen as the weak link in Germany's economy since the 2007-08 financial crisis and the subsequent euro zone debt turmoil. However on Thursday, Ifo said that consumption was now the "driving force behind the upturn."

Jennifer McKeown, senior European economist at Capital Economics, agreed there were signs of a rebound in German consumer growth.

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"Germany of course performed very well at the end of last year. We saw a 0.7 percent quarterly gain in GDP that's largely so far – and unusually for Germany – been down to the consumer sector, retail sales have picked up quite strongly, " she told CNBC over the phone.

"Certainly things have been looking up, not least the Ifo's own survey of the business climate," she added. "Other surveys have been picking up too, such as the PMI (purchasing managers' index) – they all point to a continued recovery in Germany."

Capital Economics has revised up its own forecast for German GDP growth this year to 2.0 percent from 1.5 percent.

McKeown debated however the significance of the weak euro when it came to the German recovery.

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"Perhaps surprisingly so, so far export growth has remained relatively modest, certainly by German standards… it doesn't really look for the time being like the euro is exerting a strong, positive influence, which is surprising given that it's been depreciating for eight, nine months now," she said.

Possible reasons for this, McKeown said, included structural factors holding back exports and, "a relatively long lag between the euro having an impact."

"We expect a moderate recovery of German exports and certainly see the euro having some positive impact, but we don't think that it's going to mean a boom in Germany," she said.

The Ifo's statement comes after the European Central Bank released the results of its second-quarter Survey of Professional Forecasters.

Euro zone GDP growth was revised up to 1.4 percent for 2015, compared to previous expectations of 1.1 percent. For 2016 and 2017, GDP was forecast to come in at 1.7 and 1.8 percent, up from earlier estimates 1.5 and 1.7 percent.