Germany, France central banks cut growth forecasts

The central bank of neighboring France also turned more pessimistic on the growth outlook for the eurozone’s second-biggest economy.

The Bundesbank said the powerhouse German economy would expand by 1.7 percent this year, slowing to 1.4 percent in 2017.

This was a downgrade of previous forecasts of 1.8 percent and 1.7 percent respectively.

Nevertheless, the bank’s head, Jens Weidmann, said the German economy stood on a “relatively firm” footing.

The bank said it expected the economy to grow by 1.8 percent in 2018.

Exports, long the bedrock of the German economy, are only providing a “limited” push but “should pick up” in coming years, Weidmann predicted.

The latest forecast brings the central bank into line with the German government’s 2016 forecast, which is slightly more optimistic than the International Monetary Fund with a 1.5 percent growth estimate and German economics institutes which expect 1.6 percent.

Inflation is expected to remain subdued this year, the Bundesbank said, with consumer prices rising by just 0.2 percent, accelerating to 1.5 percent next year and 1.7 percent in 2018.

The Bank of France also reiterated its earlier 1.4 percent French growth forecast for this year, but cut its outlook for 2017 to 1.5 percent from 1.6 percent earlier. Growth of 1.6 percent would now only be achieved in 2018, it said.

The central bank said the international environment had become “less favorable” for French growth, and also cited expectations of higher oil prices as a negative factor for expansion.

France’s trade deficit, partly explained by a strong euro, was also weighing on gross domestic product (GDP), it said.

Limited growth was expected to lead to an equally limited increase in jobs, with employment levels likely to rise by 0.7 this year and 0.6 percent next year, the Bank of France said.

The French unemployment rate, a key focus for President Francois Hollande’s government, will ease to 10.1 percent this year from 10.3 percent in 2015, and fall below 10 percent only in 2018, the Bank of France predicted.

The bank also called on the government to control its deficits with the aim of cutting debt, which stands at 96 percent of GDP, vastly higher than the eurozone’s 60-percent target.

Hollande’s government has promised to reduce the public sector deficit to 3.3 percent this year before bringing it below the eurozone’s three-percent limit in 2017, to 2.7 percent.