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Business

German economy to power on through 2012

Germany's leading economic institutes are sounding an upbeat note on the German economy in their spring forecast, despite rising inflation and the eurozone debt crisis.

50 euro bills

German goods are in demand both home and abroad

Germany's leading economic research institutes have made bright forecasts for the German economy following a year of industrial production that exceeded expectations. According to the joint spring forecast of the eight think tanks, Europe's biggest economy will see a 2.8 percent rise in growth, lower unemployment and less debt.

"It increasingly looks like the German economy will be experiencing another year of invulnerability," said ING Bank economist Carsten Brzewski in an interview with news agency dpa.

This comes despite the economic disruption caused by Japan's nuclear crisis and rising energy prices resulting from unrest in the Arab world. Last year, Germany recorded growth of 3.6 percent following its deepest recession in six decades in 2009.

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Much of the optimism can be attributed to a buoyant industrial sector that has benefited from a wave of domestic demand for its goods. Industrial orders in February rose by 2.4 percent over a 3.1 percent increase in January.

German exports are also strong, with analysts expecting the announcement of a 2 percent increase from January to February on Friday. Germany is among the world's top three exporters.

More jobs

Germany's labor market will benefit from the growth and employers are expected to step up hiring. The unemployment rate is predicted to slide by 0.8 percent to 6.9 percent this year and settle at 6.5 percent in 2012.

Despite the positive outlook, the threat of rising inflation looms as energy costs continue to increase. Consumer prices have already risen by 1.3 percent compared to last year and inflation in the eurozone is higher than the target set by the European Central Bank. A decision by the ECB on Thursday to hike its key interest rate was the first measure in stabilizing inflation.

Germany will also be able to drastically reduce its budget deficit as the economy powers on, following last year's 3.3 percent of domestic product peak. The institutes foresee the deficit retracting to 1.7 percent this year and 0.9 percent in 2012.

Author: Christian Nathler (Reuters, dpa, AFP)
Editor: Nicole Goebel

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