The central bank of Germany said that the highly favorable setting for household consumption would not persist long as demographic constraints have a negative impact on employment growth. Moreover, inflation erodes consumers’ purchasing power.
The bank said that Germany’s gross domestic product is set to grow by 1.8% this year and next year. In both cases, the forecast exceeds previous projections made in June by 0.2%. The projection for 2018 stood at 1.6%, which is by 0.1% lower than predicted in June. The bank predicted 1.5% expansion for 2019.
In its report, Bundesbank said that Germany's economy is on a sound upward path, mainly thanks to buoyant domestic demand. The demand is fueled by the upbeat situation in the labor market and rising household incomes, the bank said.
Meanwhile, the bank left its inflation forecast broadly unchanged from June. It raised its outlook for 2016 by 0.1% to 0.3%, but cut the next year's forecast by 0.1% to 1.4%. In 2018, inflation is seen at 1.7% and at 1.9% in 2019.
According to the Deutsche Bundesbank, the acceleration in price growth in the last two years is due to an expected increase in labor costs.
