Growth in Germany, Europe's biggest economy, could be better than expected next year and the situation in Europe is not as bad as many people think, the president of Germany's Bundesbank said on Sunday.
Jens Weidmann, a member of the European Central Bank's Governing Council, also reiterated his opposition to ECB plans to buy sovereign bonds, Reuters reported.
The ECB is watching carefully how a recent drop in oil prices will affect eurozone inflation, far below its target of just below 2 percent, and standing ready to do more to keep the region from slipping into deflation.
"As things are at the moment and if oil prices remain this low, inflation will be lower than expected, but growth will be better," Weidmann was quoted as saying.
The Bundesbank this month halved its growth forecast for Germany to 1.0 percent for next year. It also cut its prediction for 2014 growth to 1.4 percent from 1.9 percent in June.
"The situation in Europe isn't as bad as some people believe," added Weidmann.
Having largely exhausted its policy toolkit with the key interest rate at a record low of 0.05 percent, broad-based purchases of sovereign bonds – also known as quantitative easing (QE) – are seen as the ECB's last resort to revive the economy. But some ECB policymakers have reservations.
Controlling Prices
Weidmann is the most vocal opponent of such a step in the 24-member Governing Council, concerned the central bank could end up bankrolling troubled eurozone governments and lose sight of its mandate to keep prices
"(With low oil prices) An economic stimulus program has been handed to us, why should we add to that with monetary policy?" said Weidmann, adding that pressure from financial markets should not determine the ECB's moves on buying up sovereign bonds.
"I am irritated by one question dominating the recent public debate: when will you finally buy?" said Weidmann.
Risk of Downturn
German private-sector growth slowed to the weakest in 18 months in December, increasing the risk that a soft phase will turn into a more pronounced economic downturn Bloomberg reported recently.
Markit Economics said a Purchasing Managers Index for manufacturing and services fell to 51.4 this month from 51.7 in November. Economists forecast an increase to 52.3. A factory gauge rose to 51.2 from 49.5, crossing the 50 mark that divides expansion from contraction, while a measure for services fell to 51.4 from 52.1.
While German data showed this month that the economy, Europe’s largest, had a modest start into the last quarter of the year, the Bundesbank has pointed to signs that growth could strengthen. As the rest of the euro area struggles to expand and inflation hovers close to zero, the European Central Bank has held out the prospect of expanding its range of asset-purchases next year.
The German “data are consistent with only marginal gross-domestic-product growth in the fourth quarter at best,” said Oliver Kolodseike, an economist at London-based Markit. “The possibility of a renewed downturn at the start of next year is clearly becoming more and more likely, especially if the survey data continue to disappoint.”
The German economy narrowly escaped recession in the third quarter, recording growth of 0.1 percent after shrinking by the same extent in the April-June period. Economists predict growth of 0.2 percent in the final three months of the year.
