Germany's DIW Raises Forecast for 2006 Economic Growth to 1.7%
Jan. 3 (Bloomberg) -- Germany's DIW research institute raised its forecast for growth in Europe's largest economy this year, saying an export-led expansion will induce companies to increase spending.
On the same day as Germany's Federal Labor Agency reported the biggest drop in the monthly adjusted jobless total since the country's reunification in 1990, the Berlin-based DIW increased its growth prediction to 1.7 percent from the 1.5 percent it forecast June 29.
``Accelerating world trade is proving a boon to German exports,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt, by telephone. ``The recovery is broadening; no doubt the optimism is warranted.''
Business confidence jumped to the highest since 2000 in December and investor confidence rose the most in 12 years. The jobless total fell by 110,000 in December, the labor agency said today, citing milder weather that kept workers in construction jobs. All Germany's six state-funded economic institutes have raised their growth forecasts for 2006 in the past four weeks.
The DIW's projections assume the European Central Bank will raise its benchmark rate by another quarter point to 2.5 percent in the course of 2006. The bank raised borrowing costs on Dec. 1 by 25 basis points to 2.25 percent to counter inflation risks.
Exports, accounting for a third of Germany's economy, are bolstering sales at companies including Bayerische Motoren Werke AG as a weaker euro makes European goods more competitive. The DIW said exports will grow 8.1 percent in 2006 after 6.9 percent last year. The single currency will stay at an average $1.20 this year and next, it forecast.
Export Growth
The DIW, in a statement e-mailed to news organizations, said exports will ``continue to provide the main stimulus'' to the economy. Export-led growth will be backed by companies' spending on equipment, projected to rise 6.1 percent after an increase of 5.7 percent last year.
Chancellor Angela Merkel's decision to scrap homebuyers' subsidies from Jan. 1 spurred people to sign advance orders for houses and flats last year, which will help building investment to grow 0.9 percent this year, ending a three-year decline.
``The continuously strong rate of export growth will be flanked by a domestic uptrend that is particularly driven by equipment investment and other factors including construction orders,'' the DIW said in its report.
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