Bundesbank says enough stimulus

In spite of an 0.2 percent contraction in the last quarter of 2011, more government spending aimed at kick starting the German economy would be "unjustified from a cyclical perspective," the Bundesbank wrote in its monthly report published Monday.

The German central bank said it believed that the German economy was "strong enough" to grow out of the current phase of weakness "on its own" in the course of this spring "at the latest."

"The economic outlook has brightened perceptibly in recent weeks," the report said.

Both the International Monetary Fund as well as the US administration have recently called on Germany to do more to help crisis-hit eurozone countries overcome recession.

While the US wants Berlin to spur stronger growth through a new government spending program, the IMF urges Germany to provide more bailout funding for debt-laden countries.

The Bundesbank, however, said it considered such demands as "implausible," given that the government's "ambition to consolidate the budget is already very limited." Germany expects its new borrowing to be 1 percent of GDP in 2012.

Signs of pickup

The Bundesbank report said that construction and private consumption were two sectors which would be particularly likely to bolster economic growth.

The Banks noted that "growing demand" for private homes would provide "forceful impetus" to growth.

In addition, private consumption would continue to support the economy as had been perceptible throughout 2011.

"Primary reason for that is strong consumer optimism against a background of a stable employment situation," the report said.

Emerging real estate bubble

High employment coupled with historically low interest rates, the bank said, caused real estate prices in Germany to soar 5.5 percent last year - more than double the 2.5 percent increase recorded in 2010.

"For the first time since the post-unification building boom in the 1990s, economic recovery in Germany has been accompanied by rising real estate prices," the bank said.

But it warned against a new building boom, citing Germany's ageing and dwindling population as a reason.

"It is unclear if higher real estate prices will in future meet demand strong enough to cover current building costs," the report said.

Author: Uwe Hessler (Reuters, dpa, AFP)
Editor: Michael Lawton