Deutsche Bank Says Recession Over For Germany

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An economic recovery is underway in Europe's largest economy, although the pace of the recovery is likely to be moderate, a report released by Deutsche Bank said on Tuesday. The firm also expects the European Central Bank to persist with its loose monetary policy going into 2010.

The German firm commented that confidence indicators around the world were on the rise, and that the extreme risk aversion prevalent during the Lehman Brother's collapse was now almost non-existent. And with German exports having bottomed out and now on the rise again, the firm claimed that the worst was over for the German economy. Germany technically emerged from its recession, posting 0.3% growth in the second quarter.

A solid rise in incoming business suggests that exports will continue to grow in the coming months. The German economy is heavily reliant on exports, with over one-quarter of GDP generated by export revenue. With global economic conditions improving, German exports look set to stage a sustained recovery. Nevertheless, the firm expects exports to fall 17% on average in 2009, faster than the 15% decline in total world trade.

Eventhough manufacturing output has taken a heavy hit in the wake of the financial crisis, the firm projects production to rise by a substantial 5% in 2010. Inventory depletion is also a good sign for an economic recovery as when demand rises, companies not only have to increase production to satisfy demand, but also have a tendency to replenish their inventories.

Confidence has also recovered, with the IfO business climate index rising steadily from its historic low in March. Consumer prices are also expected to rise gradually going into 2010, after recording their first annual fall since 1987 in July on the back of plunging oil prices. However, new car purchases are likely to reduce, now that the government's scrapping bonus scheme has expired. In all, the firm forecast the German economy to grow by a modest 1% in 2010.

As a consequence of the unprecedented stimulus measures passed by the government, public debt is expected to soar to about 80% of GDP by 2010 in Germany. The firm expects the next government to introduce a mix of higher taxes and levies and spending cuts from the middle of their term in the office in order to consolidate public-sector finances.

The firm also commented on the timing of the European Central Bank's exit strategy from its current accommodative setting, and said that the ECB can afford to be relatively relaxed about tightening its monetary policy. The firm said that unlike the Bank of England and the Federal Reserve, the ECB has only undertaken a limited number of unorthodox measures. The ECB is highly unlikely to follow the Reserve Bank of Australia's lead in raising interest rates any time soon, with Deutsche Bank estimates pointing to a tightening of monetary policy some time in 2010.

An economic recovery is underway in Europe's largest economy, although the pace of the recovery is likely to be moderate, a report released by Deutsche Bank said on Tuesday. The firm also expects the European Central Bank to persist with its loose monetary policy going into 2010. (Market News Provided by RTTNews)