There is no reason to be downbeat about the German economy this year as consumers and investors expect growth to resume after a contraction at the end of last year, the Bundesbank said today.
German companies are also more optimistic, especially those in the retail and wholesale sectors, after an improvement in surveys of household sentiment, the German central bank said in its monthly report for February.
Despite a weaker fourth quarter, "there is no reason for pessimism about this year. Obviously many consumers and investors share the assessment that the current sideways movement will be transformed again into a process of growth," the bank said.
"Companies also began the new year with more favourable expectations, especially in retail and wholesale."
Europe's biggest economy unexpectedly contracted in the final three months of last year, after stagnating in the July to September period, preliminary Federal Statistics Office data showed last week.
Demand from companies for investment goods appeared to weaken again at the end of the year, after a strong gain in the third quarter, the Bundesbank said. Private consumption posted a slight gain, but it is not yet possible to extrapolate a lasting increase in consumer spending, it added.
However, export growth should still help to underpin Germany's expansion in coming months despite the appreciation of the euro, which makes goods produced in the 12-nation single currency region more expensive to customers outside the block, the bank said.
Bundesbank President Axel Weber said on Friday that Germany, which accounts for about a third of euro-zone gross domestic product, could deliver a positive surprise in the first quarter of this year.
Mr Weber, who also sits on the European Central Bank's governing council, said German GDP actually expanded by 0.4 per cent in the final quarter of last year if statistical adjustments for differences in working days were discounted.
"That would suggest that a positive surprise is possible in the first quarter of 2005 when the number of working days is below the average," he said in an interview.
Turning to Germany's stretched public finances, the Bundesbank said in today's report the government could reduce its 2005 budget deficit below the EU limit of 3 per cent of GDP but that the forecast was fraught with risks.