FRANKFURT (MktNews) - Germany's third largest bank, Dresdner, Monday reduced its 2001 growth forecast for Germany to 2.5% from 3%, on "technical" grounds, the bank's economists said.
Lower than anticipated fourth quarter 2000 growth data meant the growth overhang for 2001 is less strong than originally thought, the economists said.
Still, "the hard facts still do not indicate a slowdown", said Rolf Schneider, head of macro- and sector analysis at Dresdner.
Earlier this month, a number of Germany's leading economic research institutes revised down their growth forecasts. The HWWA reduced its 2001 GDP projection to 2.3% from 2.7%, following similar moves by the Kiel institute, the DIW institute and by Ifo. Kiel cut its forecast to 2.1% from 2.4%, Ifo to 2.4% from 2.5% and DIW to 2.1% from 2.5%.
However, Dresdner remains upbeat as new orders rose more strongly than production in recent months. "This indicates, that in some sectors of the economy capacities were too busy to fill orders immediately", Schneider said. "Thus, although the dynamic of incoming orders might slow down, production will likely continue to grow on a stable path."
Dresdner Bank expects the German economy to grow by 1% q/q in the first quarter of 2001.
2001 private consumption will likely contribute 1.3% to growth and nominal disposable income will rise by 4% due mainly to tax cuts and higher employment Dresdner forecast. "The currently high consumer sentiment also supports our view that private consumption will be a major support for growth this year", economist Harald Joerg said.
However, the continuing structural adjustment in Germany's construction sector will slow German growth in comparison to other eurozone economies. Still, the performance of German industry is and will remain strong, according to the bank, Joerg said.
As 55% of the exports from German industry are sold outside the eurozone the effect of developments outside Europe is somewhat stronger than in other EMU countries. "One percent lower growth in the United States reduces German growth by about 0.3%" Schneider said.
Dresdner expects the ECB to lower interest rates by 25 basis points next Thursday or in April, but would not agree with such a step, since inflation pressures remain present and growth expectations at least in line with potential growth.
The bank expects the U.S. Federal Reserve to lower interest rates by at least 50 basis points at its next meeting on May 15. "There are clearly inflation risks for 2002 and 2003 in the United States," Dresdner's chief economist Klaus Friedrich said.