Following a brisk start to the year, which was due in part to the very mild winter, the German economy subsequently lost momentum to a surprising extent. "However, there is reason to hope that the current sluggish phase will prove to be short-lived", commented Jens Weidmann, President of the Deutsche Bundesbank, on the Bank's new semi-annual projection. President Weidmann justified this confident assessment on the grounds that the German economy is still in remarkably good shape. "This is not only benefiting the domestic economy but is also enabling German exporters to seize opportunities on foreign markets", he explained. Such opportunities should increase again over the course of 2015.

Aggregate output

The Bundesbank's economists believe that, under these conditions, the German economy could grow by 1.4% in 2014 and 1.0% in 2015 (0.8% in calendar-adjusted terms). For the year 2016 they are anticipating a 1.6% increase in real GDP (1.5% after calendar adjustment). With potential growth estimated to be at just over 1% per year, aggregate capacity utilisation should consequently remain within normal bounds across the entire forecast horizon. Employment would record further growth. According to the Bundesbank's experts, general government is likely to post a slight budget deficit next year owing to stronger expenditure growth.

Price developments

Wages will likewise record a further marked increase thanks to the buoyant labour market. The new general minimum wage will be a factor in this. Inflation, as measured by the Harmonised Index of Consumer Prices (HICP), could rise from 0.9% this year to 1.1% in 2015 and to 1.8% in 2016. Excluding energy, the rate of inflation is likely to increase to 2% in 2016 in the wake of the marked rise in wages.

Risk assessment

Crude oil prices have fallen again substantially since the projection was finalised. They are now an average of just over 11% below the assumptions underlying the projection. "A fall in the price of crude oil on this scale has the effect of a small stimulus package in that it reduces both households' cost of living and companies' production costs", the Bundesbank President said. "If crude oil prices remain at this subdued level for an extended period of time, economic growth in 2015 and 2016 could turn out to be between 0.1 and 0.2 percentage point higher in each case", Jens Weidmann asserted. The Bundesbank's experts calculate that the HICP inflation rate would then, however, probably be ½ percentage point lower next year. At the beginning of 2015, the inflation rate in individual months could also be close to zero. There would also be slightly lower inflation rates in 2016.