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German C.bank confident in economy, but warns of risks

German C.bank confident in economy, but warns of risks

Mubasher: Germany’s Bundesbank voiced its confidence that the economy would overcome its latest slowdown, warning that rising protectionism and a no-deal Brexit threaten the outlook.

Bundesbank slashed its growth projection for this year and next, while lowering its inflation outlook for next year.

Gross domestic product (GDP) is now set to come at 1.5% this year, down from the previous 2% forecast, while Europe’s largest economy would grow at 1.6% in the next year, compared with earlier projection of 1.9%.

The central bank raised its forecast for inflation this year to 1.9% from 1.8%, but downgraded its projection for the next year to 1.4%, compared with the previously expected 1.7%.

“Fairly strong” growth can be expected in the current quarter and next, but the recovery “masks the fact that the underlying cyclical trend is likely to remain fairly subdued,” the Bundesbank said.

“It is to be expected that the German economy will only grow slightly faster than its potential next year,” Bundesbank President Jens Weidmann said in a statement.

Despite the trade tensions between the US and a number of countries eased in recent months, the central bank still expected an elevated risk of rising protectionism worldwide, which could undermine the export-oriented German economy.

Moreover, it pointed to the ongoing threat stemming from the UK crashing out of the European Union (EU), the geopolitical unrest, and Italy’s fiscal plans.