OREANDA-NEWS. June 03, 2015. After the energetic spurt in the final quarter, growth of the German economy returned to moderate levels. KfW Research expects that growth of 0.3% in Q1 2015 compared to the previous quarter will be followed by 0.2% growth in the current quarter. The assumption of another moderate increase is supported, for example, by a decline in incoming orders in the first quarter ( 1.6% compared to the previous quarter). Economic activity should gain momentum again from mid-year on. KfW Research continues to expect economic growth of 1.5% for the full year 2015. The economic forecast for 2016 is still at 1.8% (annual figures not adjusted for calendar effects).

The increase in gross domestic product will be driven by the domestic economy this year and the next. Consumer spending continues to be the most important catalyst for growth, especially due to the continuing excellent situation on the labour market. Investment in the housing sector, which has been on the rise for quite some time now, also continues to add impetus. For the first time in a year, corporate investment has increased considerably again in the first quarter of 2015 (+2.1% compared to the previous quarter), which should also contribute to the growth momentum, albeit only marginally.

Cross-border trade is not expected to add much momentum in this and the coming year. While exports are likely to rise on the back of the anticipated growth in demand from the euro area, the slowdown of global economic growth for structural reasons – especially in the large emerging countries such as China, Brazil and Russia – means the dynamics of world trade are also weaker than before the financial crisis. On balance, foreign trade will not contribute much to growth in both 2015 and 2016, as imports will increase more rapidly thanks to the healthy domestic economy.

"The German economy will achieve a solid upswing in 2015 – nothing more and nothing less either," KfW Chief Economist Dr J?rg Zeuner summarises. "The increase in corporate investment at the beginning of the year is a positive sign, without a doubt. But this is just a first step. A lot more needs to happen to overcome the low corporate investment level on a sustained basis. I am convinced that an improved economic environment in Europe will provide tailwind this year and in the coming year!" Zeuner also emphasised the need for more public investment, which had dropped again in the first quarter of 2015 (-1.3% compared to the previous quarter). "After three years of extremely tight budgets, a sharp trend reversal in public investment is long overdue - not only to boost the economy, but also to make public services and infrastructure fit for the future."

The current KfW Business Cycle Compass is available for download at:

www.kfw.de/konjunkturkompass.