Boston, MA -- (SBWIRE) -- 04/10/2014 -- We remain slightly above consensus on German real GDP growth in 2014, as we expect the incipient recovery to continue over the next few quarters.

We believe that more distributive policy proposals by the new coalition government jeopardise much of the fiscal progress made over the last decade. Stronger growth and the long-term nature of these proposals imply limited impact on the current administration's debt and deficit targets, but if implemented would increase the fiscal burden for future generations.

Since Germany's massive current account surpluses are being channelled into unproductive overseas investments we believe the country is squandering its large net savings. This trend will reverse modestly over the next few years, but structural factors will prevent more efficient use of sustained surpluses, to the detriment of Germany's long-term growth potential.

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Major Forecast Changes

We have made no major changes to our forecasts this quarter.

Key Risks To Outlook

O ur core scenario envisages that the incipient recovery in economic activity is sustained over the next few quarters, as improved manufacturing output feeds through into stronger domestic demand. However, a slowdown in export growth on the back of slumping emerging market demand could choke off this recovery, which would mean our above-consensus growth forecast for 2014 is too optimistic. E xternal (particularly Chinese) demand and euro trajectory also pose threats to Germany's external account and net export outlook.

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