Bundesbank: German Growth to Return to Normal Ater Strong 2Q

       By Todd Buell 

    Germany's economy will slow for the remainder of the year after a robust second quarter, the country's central bank said in its monthly bulletin published Monday. The Deutsche Bundesbank also noted risks to growth as German companies establish production facilities outside of Europe, potentially limiting investment in Germany and export growth.

    The comments come less than a week after the Federal Statistics Office reported that Europe's largest economy grew at a 0.7% quarterly rate in the second quarter of this year. The economic performance helped push the euro zone out of economic contraction, after 18 months of falling output.

    "After a second quarter marked by catch up effects, economic growth in Germany is likely to return to normal and steady rates," said the Bundesbank.

    "The expected increase, more or less equaling that of potential growth, will ensure that capacity utilization remains good." Potential growth, which refers to the maximum sustainable growth in economic output, is estimated in Germany to be between 1% and 1.3%.

    The bank questioned whether this pace would be enough to spawn new investment in Germany, as additional demand for German industrial products come predominantly from outside of the European Union. "The internationally positioned German firms are thus often expanding their production capacities there." This limits capital formation in Germany as well as export growth, the bank said.

    Data released earlier this year showed that among Germany's major trading partners, the largest jumps in exports between 2012 and 2011 were to the U.S. and U.K., while exports to some key euro-zone states, such as Italy, declined sharply.

    The Bundesbank said that a sustainable expansion of domestic investment can only be expected when the economic outlook for euro zone countries improves in a lasting way and the uncertainty surrounding policy is "further checked through suitable measures to combat the debt crisis in the euro area."

    "Until then, the German economy will be supported to a considerable extent by private consumption and residential construction." Exports to the European Union made up nearly 60% of German exports in the first six months of the year, data released earlier this month showed. Total exports to the EU were down 2% than a year ago. On the flip side, exports outside of the EU were up by 1%.
