The International Monetary Fund expects German growth to reach 2.0 percent this year, after last year's slight contraction, even as high oil prices remain a risk, fund sources cited a draft report as saying on Sunday. The Washington-based fund says Germany's export-driven recovery is broadening though domestic demand remains sluggish, the sources said. However, the IMF expects strong export growth to eventually feed into domestic demand -- household spending, corporate investment and government expenditure -- as in previous economic cycles, they added. The fund expects Germany's headline growth rate to easeto 1.8 percent next year, the sources said. However, as there are fewer working days in 2005, expansion of that pace would represent an acceleration in growth in workday adjusted terms. Oil prices have jumped 70 percent since the start of this year, as the fastest global growth in decades boosts demand. Economists expect dear oil to have helped pushed down the Ifo institute's key measure of German business confidence in Ocotber, due for release on Monday.
Berlin is also due to publish updated growth forecasts on Monday. It currently forecasts expansion this year and next of 1.5 percent to two percent. Germany's six leading economic research institutes last week predicted the economy would grow 1.8 percent this year and 1.5 percent in 2005. The rosier outlook for the economy creates room for further budget consolidation and deeper medium-term structural reforms, the sources cited the IMF report as saying, adding that the government needs to boost efficiency in Germany's creaking health system. Germany's budget deficit will come in at 3.9 percent of gross domestic product (GDP) this year, and, at 3.3 percent next year, will exceed the European Union's three percent cap for a fourth straight year, the fund predicts. Under Article IV of the IMF's articles of agreement, the fund holds bilateral discussions with its members and a staff team visits the country usually once a year. It collects information and discusses economic developments and policies with officials before writing a report. The fund's executive board is due to discuss the latest report on Germany on Monday, after which a summary will be sent to Berlin.///