The German economy, Europe's biggest, should grow by 3.0 percent this year, the central bank said on Thursday, upgrading a previous forecast of 1.9 percent following record second quarter growth. Stronger employment should boost consumption and help the government reduce its deficit faster than anticipated, the Bundesbank added as growth by other major economic powers like China and the United States slows down. More than half the decline in German production that stemmed from the global economic crisis has now been made up due to favorable conditions both at home and abroad, the central bank said in its monthly report for August. In 2009, the German economy contracted by 4.7 percent, its worst recession since World War II. This year however could see the strongest expansion since the record level of 3.4 percent in 2006, the central bank said. In the second quarter of 2010, the German economy expanded by 2.2 percent from the previous three-month period for the strongest quarterly increase since the country was reunified in late 1990. “The outlook for the current year remains favorable, even if there are signs for a slowing of global production activity and trade,” the report said. “The overall trend of the German economy is positive and the upswing ought to continue,” it added, citing stronger investment by domestic firms and growing private consumption. Meanwhile, there was only a low risk of a second recession in the US, the report said. US business investment has started to pick up faster than during previous recoveries, which should also underpin employment and consumption, it said. The World Bank forecast in June that the US economy, the world's biggest, would grow by 3.3 percent this year, while number two China was tipped for an expansion of 9.5 percent. Germany was expected by World Bank economists in June to see growth of 1.3 percent. In Germany, low funding costs are now expected to help keep private sector construction activity on track while the Bundesbank said it saw a gradual start to recovery in the labour market. The number of short-time German workers was cut nearly in half in the second quarter to 481,000, as a successful state-subsidised scheme to keep workers in their jobs during the downturn is wound down in turn. Meanwhile, the Bundesbank said the German deficit would probably be “well below five percent” of gross domestic product this year, and that Berlin would reach a ratio of four percent in 2011 and three percent in 2012. European Union countries are not supposed to run deficits of more than three percent of GDP and work towards balanced budgets in times of economic growth, but many have had to run up their deficits with stimulus programmes. The German central bank said Germany was not responsible “for other countries' debts or automatic, institutionalized support at the European level,” after Berlin was slammed for failing to quickly aid debt
