German Outlook Brightens as Economy Gains Speed

The economic outlook for Germany is brightening, its central bank said Friday, as improved trade and rising industrial output suggested Europe's biggest economy is slowly leaving recent weakness behind it.

"The outlook for the German economy has become brighter again following the slowdown towards the end of 2012," the Bundesbank wrote in its June monthly report.

Despite continued tensions in the euro area, Germany could soon see a modest upturn as investment picks up again and exports -- traditionally the main engine of economic growth -- gain momentum, the central bank wrote.

"Although there has been no fundamental change in the underlying conditions, there has, above all, been no major deterioration either," the report said.

"Moreover, the world economy should pick up again in the course of this year. In the euro area, too, the economy appears to be bottoming out."

Just a day before, the European Central Bank tweaked its growth forecasts for the eurozone as a whole, predicting a contraction of 0.6 percent this year, but a return to growth of 1.1 percent next year.

For its part, the Bundesbank predicted that German gross domestic product would expand by 0.3 percent in 2013 and 1.5 percent in 2014 in a slight downward revision from the previous forecasts in December.

German growth, which shuddered to a halt at the end of last year, picked up only slightly to a meager 0.1 percent in the first three months of this year.

The Bundesbank blamed that on "the especially persistent winter weather" and in the second quarter "the improved underlying trend should come to the fore", it said.

Industrial capacity would be "well utilized, the labor market would be buoyed by economic activity" and given current fiscal policy, "the general government budget would be balanced," the Bundesbank said.

It warned however, that the risks to this forecast "are largely on the downside."

"Much will depend on whether the economic situation stabilizes in the euro-area crisis countries and whether expansionary forces will gain the upper hand there," it said.

The Bundesbank said that letting up on consolidation and reform efforts would have a negative effect on financial markets.

Also Friday, the economy ministry and the national statistics office Destatis published better-than-expected trade and industrial output data which underscored the scenario of a nascent recovery.

Industrial output grew by 1.8 percent in April, after already adding 1.2 percent the previous month.

Destatis calculated that German exports rose 1.9 percent to 93.1 billion euros in April, while imports rose by a slightly stronger 2.2 percent to 75.4 billion euros.

That meant the trade surplus inched up fractionally to 17.7 billion euros in April.

The better than expected data was "positive news" and "a sign that the foreign trade is gaining momentum after the weak performance in the first quarter," said Natixis economist Johannes Gareis.

On a 12-month basis, exports grew by 8.5 percent year-on-year while imports advanced by 5.2 percent, Destatis said.

A breakdown showed that exports to eurozone countries increased by 4.3 percent year on year, while exports to countries outside Europe soared by 13.6 percent.

"The sharp rise in German industrial production in April will add to hopes that the modest recovery seen in the first quarter will gain pace in the second quarter," said Capital Economics economist Jennifer McKeown.

"Together with earlier data revealing a solid rise in exports, this raises the chances that GDP growth could pick up in the second quarter the modest 0.1 percent in the first quarter," she said.