German economic growth likely to be favored by upbeat domestic activity, says Bundesbank

German gross domestic product is expected to rise this year and the coming on favorable upswing seen in domestic activity and estimated potential increase in output which has been raised slightly as a result of the higher labor market oriented migration that is now being expected, reports from Bundesbank said.

According to estimates released by the Bundesbank, German gross domestic product (GDP) to rise by 1.7 percent this year, with growth rates of 1.4 percent and 1.6 percent projected for 2017 and 2018 respectively. Here, calendar effects mask the rather uniform growth rates in working-day-adjusted terms of 1.6 percent in both 2016 and 2017 and 1.7 percent in 2018.

Against this background, economists at the Bundesbank's believe that consumer price inflation is likely to increase considerably. They expect that inflation, as measured by the Harmonised Index of Consumer Prices (HICP), to rise from 0.2 percent this year to 1.5 percent in 2017 and to 1.7 percent in 2018. Excluding energy, HICP inflation is likely to climb from 1.0 percent in 2016 to 1.8 percent in 2018.

Meanwhile, economists at the Central Bank of the Federal Republic of Germany have slightly lowered their expectations for economic expansion in 2016 and 2017, while significantly reducing the inflation outlook.

"Fluctuations in the price of crude oil continue to present a risk, particularly for the price projection, but on the whole appear balanced, as do the risks to economic growth," said Jens Weidmann, President, Bundesbank while commenting on the new projection.

Meanwhile, there remains a downside risk to the price projection if wage growth falters or if higher labor costs are not passed on to consumers to the extent assumed in the projection, the apex bank said.