KfW Economic Compass: German economy in recovery mode

Frankfurt (ots) -

- KfW predicts GDP growth of 0.6% this year and 2.0% in 2014
- Corporate investment set to rise in 2014 for the first time in
three years
- Economic risks lie primarily in Europe

The German economy is in recovery mode. After a meagre 0.6% (price
and calendar-adjusted) growth in GDP this year, it looks set in 2014
to rise by more than the long-term average for the first time in
three years.

"Germany is stepping up a gear. We expect GDP to increase by 2% in
2014, and therefore confirm our earlier forecast," says Dr Jörg
Zeuner, Chief economist of the KfW Group, who presented the latest
KfW Eco-nomic Compass in Frankfurt today. "For some time now,
residential con-struction and consumer confidence have made solid
growth contributions to domestic demand. This will not change
fundamentally in 2014. How-ever, the international horizon is now
also brightening up."

Emerging economies will continue to grow at a high rate, albeit
without matching the record figures of previous years. By contrast,
industrialised nations which are key export destinations for Germany
like the United States and Britain are clearly picking up momentum
and are thus currently the most important driving force of the global
economy.

One particularly pleasing development from Germany's point of view
is that its domestic European market has finally overcome the
recession. Since last summer, the Eurozone has begun charting an -
albeit sluggish - expansionary course which more and more countries
are joining. Re-form countries are seeing the first positive effects
of painful measures, thus giving people a slightly more optimistic
view of the future again. This stabilisation should continue in 2014,
giving German exports the backing they need and leading to rising
capacity utilisation for our companies. To-gether with lower
uncertainty and further low interest rates, this will give German
corporate investment a fresh impetus. According to KfW esti-mates, it
should rise by 5% in real terms in 2014, the first increase in three
years. Even so, we are still far from overcoming the structural
weakness with regard to investment. As such, pre-crisis levels will
still be out of reach in 2014.

The greatest risk for poorer-than-expected growth lies in an
unexpected yet still possible setback in Europe, where the ongoing
recovery could be slowed down by financial bottlenecks in reform
countries, for example. Potentially destabilising political debates
about the common currency are still just as impossible to rule out as
are recurring doubts about the sus-tainability of the consolidation,
which could fuel renewed tension on the financial markets. According
to Zeuner, "In this case, our exports and cor-porate investment would
probably not recover, and unemployment would rise. On the other hand,
Europe offers opportunities since the potential for recovery is
significant after the steep fall." Consumer demand in particular
could provide a positive surprise since some people in southern
Europe are sitting on considerable wealth. Were they to be more
confident about the future again, they could be encouraged to reduce
their savings ratio.

Further information on the KfW Economic Compass and a video sound
bite of Dr Jörg Zeuner can be found at www.kfw.de/newsroom.

Contact:
KfW, Palmengartenstr. 5 - 9, 60325 Frankfurt
Kommunikation (KOM), Christine Volk,
Tel. +49 (0)69 7431 3867, Fax: +49 (0)69 7431 3266,
E-Mail: presse@kfw.de, Internet: www.kfw.de