FRANKFURT (MktNews) - The Bundesbank's monthly report for March gives a cryptic assessment of the German economic outlook this year, on the one hand arguing that German industry started the year in good shape given the international environment and on the other predicted clearly slower growth than in 2000.
The upshot may be that the German central bank wants to warn markets that it expects growth this year to be closer to the forecasts of Germany's major economic research institutes than to that of the German federal government -- that is, closer to 2% than 2.75% -- but that it doesn't expect a growth collapse.
Still, the BBK report draws no conclusions and leaves it to others to read between the lines.
The BBK report also gives no direct clues about possible changes in European Central Bank policy. The only possible hint is when it notes that oil prices in mid-March, at about $25 per barrel, were fully 25% lower than at their peak in September last year.
Just after that oil price peak, on Oct. 5, the ECB raised rates by 25 bp, the last tranche of its 225bp in hikes over the previous year. It is possible that continued lower oil prices will allow some easing of the ECB's stance, but the BBK report does not draw this conclusion.
Still, it seems clear from the report that the Bundesbank has a more subdued outlook for German growth this year.
In its section of German corporate profit, the central bank states: "In the current year, the earnings outlook is in no way unfavorable, despite the likelihood of a clearly lower rate of economic growth."
German growth stood at 3.0% in 2000, and a slight drop to 2.75%, as currently projected by the federal government, would hardly seem to qualify as a "clearly lower rate of economic growth." Still, expectations of buoyant corporate profits should allow for some rising investment this year, which would help boost growth.
But the BBK is not more specific, giving no details of its own growth forecast.
And it is also upbeat about the outlook for German industry, saying it started 2001 in "quite good" shape despite the overall "unfavourable" international environment. It notes that despite the sharp fall in manufacturing orders in January, December and January orders combined are still up 0.5% from the previous two-month period and 11.5% above a year earlier.
But the BBK also warns that the sharper-than-expected 2.1% rise in German manufacturing production in January is likely to be revised down.
This comment suggests that overall January industrial production will be revised down from the originally reported 0.9% rise, though the BBK report does not say this directly. Note that outside the sharp 8.0% rise in capital goods output, nearly all output categories declined in January, meaning the data may look even thinner after revision than they did originally.
As its largest member state, Germany will have a pronounced impact on overall eurozone growth this year. However, it remains to be seen whether somewhat weaker growth in Germany this year, at least that which is projected by the Bundesbank at the moment, will be enough to compel the ECB to cut interest rates in the near future.