OREANDA-NEWS. May 30, 2012. After its impressive start into the year 2012, Germany's economy will remain on a solid growth path. This is the main finding of the KfW Economic Compass which was presented in Frankfurt. KfW thus confirms the optimistic forecast for GDP growth this year and the next, which it published in February. Adjusted for price and calendar effects, economic growth in 2012 will be 1.2% in 2012 and 2.0% in 2013. Growth in real terms is forecast to be driven primarily by domestic demand in both years.

"The German economy started the year 2012 with a bang, and first-quarter GDP growth of 0.5% surprised even us optimists. We had expected a 0.2% increase", said Dr Norbert Irsch, Chief Economist of KfW Bankengruppe. He added that Germany was proving to be a strong anchor in Europe whose hunger for imports also benefited the stressed euro countries. "After a minor slowdown in the spring (+0.3% over the previous quarter) we expect quarterly growth rates of close to 0.5% through to our forecast horizon at the end of next year", KfW's chief economist continued.

He said the country was well positioned. "Despite the difficult environment, companies are exporting successfully thanks to their competitiveness, which is protected against revaluation by the euro, and their range of products which is especially attractive to industrialising countries", Irsch commented. "The domestic economy, too, is significantly stronger than in the past decade. The job market is robust, government finances are solid, interest rates are low and the financing structures of private households and enterprises are healthy. In this favourable situation, the government should make use of existing scope within the national or European consolidation framework to finance incentives for measures aimed at stimulating growth in areas such as education and innovation, but also in the energy turnaround. Given the challenges of demographic trends and climate change, such initiatives are necessary."

All optimism aside, in the current situation strong negative shocks cannot be ruled out either, and if they occurred they would render the forecast of the KfW Economic Compass obsolete. Most notably, the uncertainty created by the debt crisis is increasing sharply again because of the unclear political outlook not only in Greece. Another continuing, considerable geopolitical risk is the smouldering and unresolved controversy over Iran's nuclear programme.