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Germany’s Bundesbank sharply cuts 2016 inflation forecast

Germany’s Bundesbank sharply cuts 2016 inflation forecast

BERLIN: Germany’s Bundesbank has sharply cut its inflation forecast for next year on the back of lower oil prices, its semiannual forecast showed. The data suggest that even in one of the eurozone’s stronger economies, inflation will remain weak for some time, underscoring the challenge facing the European Central Bank as it tries to revive inflation in the 19-country currency bloc.

The Bundesbank said that it saw inflation in Germany at 0.2% this year, 1.1% next year and 2.0% in 2017. These are all reductions from the forecast given in June when the Bundesbank predicted 0.5% for this year, 1.8% for next year and 2.2% for 2017. “The adjustment to expected price developments largely reflects the renewed downturn in crude oil prices, which had not been expected in June,” the Bundesbank said.

Germany’s central bank was generally upbeat on the growth outlook for Europe’s largest economy. When adjusted for working days, the central bank said that gross domestic product would grow by 1.5% this year, 1.7% next year and 1.9% in the following year. This largely matched the June forecast, with the only change being the 2017 prediction, which increased by 0.2 percentage point.

Bundesbank President Jens Weidmann said the economy’s “main drivers are the favourable labour market situation and substantial increases in households’ real disposable income, though foreign trade is currently being hampered by frail demand from the emerging market economies.”

Still “with export markets outside the euro area expected to rebound and economic growth within the euro area gaining a little more traction, the healthy underlying state of the German economy should stand out even more clearly over the next two years,” he said. The Bundesbank also said that the “mass influx of refugees” had lifted the country’s potential growth rate from 1.2% to 1.3%.