Germany remains Europe's growth engine

• GDP growth significantly above long-term trend rate
• KfW Research raises economic forecast to 1.8% for 2015 and 2.0% for 2016
• Growth is driven by steady consumption and rebounding exports

The German economy remains Europe's growth engine. KfW Research has increased the growth forecast for Germany from 1.5% to 1.8% in 2015 and expects real GDP to grow by 2.0% in 2016 (previous forecast 1.8%). Growth continues to be buoyed by the positive development of consumption expenditure fueled by rising incomes and growing employment. In the second quarter, foreign trade was the main driver of Germany's growth. Exports grew substantially as a result of the weaker euro. Combined with falling energy import prices, net exports are likely to remain a mainstay of growth in the second half of the year as well.

"The German economy has recovered well from its weakness in 2012 and 2013. Although 1.8% growth this year and 2.0% next year is not a boom, it is still a cause for joy. The increase is well above our 1.3% average growth rate since unification", said Dr Jörg Zeuner, Chief Economist of KfW Group.

KfW Research also expects German corporate investments to rebound slowly this year. Domestic and foreign demand, especially from Europe, is expected to continue developing positively. That should make it easier for businesses to decide on investments. The financing conditions for expanding investments also remain favourable. Finally, there are positive signs that public investments will also pick up again after three years of decline. The investment programmes decided at federal and European level give reason to hope that public investments can increase significantly in 2015 and 2016 from their current low level.

"Once again, the financial markets could muddy the waters. We all should realise that China's attempt to intensify its economic liberalisation will not proceed without disruptions. It would be regrettable if, once again, investors' nervousness were to cause the necessary rectification of the lending excesses of the past years to take place much too quickly. That could significantly damage Germany's economy as well", commented Zeuner.

The current KfW Business Cycle Compass Germany is available for download at

www.kfw.de/konjunkturkompass