Germany's economic recovery is still too dependent on exports to be self-sustaining and its total public sector deficit is on track to equal last year's record level, the Bundesbank said on Monday. In its monthly report for May, the German central bank also said high oil and commodity prices could pose a risk to a global recovery that so far seems undented by geopolitical events. "The economic recovery in Germany gained in strength somewhat in the first quarter," the Bundesbank wrote, noting the economy grew at a quarter-on-quarter rate of 0.4 percent. "However, it would be hasty to simply extrapolate the higher growth rate of the first quarter...The cyclical recovery remains on a narrow footing," it said.
Domestic demand remained weak, the Bundesbank wrote, noting consumers were choosing to save rather than spend, which it said was unusual when compared with previous periods of recovery. "The current rise in the savings quota could be related in part to more awareness about the problems faced by the public health and pensions system and the need to provide for one's own cover," it said. The Bundesbank said new forecasts last week showing tax revenues were likely to fall short of earlier projections confirmed Germany's public sector deficit was on track to equal last year's record 70 billion euros. It said estimates of revenues from Germany's tax amnesty -- originally put by the government at five billion euros for all levels of government -- had been cut by 3.5 billion euros.
OIL A DANGER
The central bank said the global economy had so far weathered all risks facing it well, but warned recovery could be at risk if commodity prices remained high. "The global recovery has gathered strength and broadened in the first few months of (2004)," the Bundesbank wrote. "From today's point of view, there appears a good chance that despite high geopolitical risks there won't be a major disturbance of the global economy." "Up until now, global growth does not appear to have suffered notably from the sharp rise in commodity prices," it said. "But a certain braking effect can't be ruled out, above all in the dollar area, if oil prices stay at current levels for a long time, or even rise further, so that energy prices overall increase."///