German growth to slow sharply in Q2 before rebound - Bundesbank

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FRANKFURT (Reuters) - Germany’s economic growth is likely to slow sharply in the second quarter before rebounding later in the year and returning to a solid growth path, the Bundesbank said in a monthly report on Monday.

Growth will dip compared to the first quarter due to lower industrial export orders and fluctuations in the construction sector and as the positive impact of a relatively warm winter wears off, the country’s central bank said.

Expanding at a quarterly rate of 0.7 percent, Germany was the driver of an unexpectedly strong first three months of 2016 for the euro zone economy, with strong investments and healthy industrial output suggesting that the bloc was on the upswing.

“The positive sentiment indicated by corporate and household surveys suggest that economic growth after a weak second quarter should increase again over the next six months,” the central bank said.

Despite the second quarter dip, it still expects full year growth of 1.7 percent, in line with last year’s figure, supporting the European Central Bank’s view that its extraordinary stimulus was adding to growth and reviving inflation.

That figure also matches the government’s growth forecast.

Analysing recent ECB policy steps, the Bundesbank said that its December measures, which included a rate cut and the extension of its asset buying programme, will add between 0.1 percent and 1 percent to inflation per year between 2016 and 2018.

The ECB’s March measures, another rate cut and a further expansion of purchases, would add somewhat less, it added.

Reporting by Balazs Koranyi; editing by John Stonestreet