FRANKFURT (Reuters) – German economic growth is expected to have accelerated significantly in the fourth quarter and inflation, depressed for years, may exceed 1 percent this month on the back of higher oil prices, the Bundesbank said on Monday.
Growth, sluggish for most of the second and third quarters, was seen picking up on better industrial production, solid construction output and buoyant private consumption supported by optimistic sentiment, the central bank said in a monthly report.
The Bundesbank’s upbeat assessment chimes with a similar projection by the Ifo Institute last week, suggesting that the economy is past its mid-year dip when weak export demand and uncertainty after Britain’s decision to leave the European Union weighed on its expansion.
“The exceptionally large increase of new orders, combined with favorable corporate sentiment, is expected to stimulate industrial activity throughout the quarter,” the Bundesbank said. “Household consumption is also an important pillar of the economy, which is reflected in the sharp rise in retail sales in October.”
Inflation, the European Central Bank’s biggest headache for years, is also expected increase sharply, likely exceeding 1 percent in December, hitting its highest level since April 2014 and coming well above last month’s 0.7 percent reading.
Inflation has undershot the ECB’s target of at or just below 2 percent for nearly four years despite unprecedented stimulus to revive growth and support prices.
But Brent crude <LCOc1> is up 14 percent over the past month and 49 percent since the start of the year, supporting the rebound in inflation.
(Reporting by Balazs Koranyi Editing by Jeremy Gaunt)