Boston, MA -- (SBWIRE) -- 12/23/2013 -- 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 still believe a grand coalition between Germany's centre-right Christian Democrats (CDU-CSU) and the centre-left Social Demo -cratic Party (SPD) remains the most likely outcome following the September 2013 general election. Under such a government we would expect slightly less focus on fiscal austerity both at home and for periphery eurozone states, although the change from current policy trajectory would be modest.

We believe Germany's current account surplus has peaked in 2013, and is set to narrow over the next few years as exports to Asia are hit by China's painful economic rebalancing, and imports rise in line with a strong private consumption story.

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Major Forecast changes

We have made no major changes to our forecasts this quarter, as we await the outcome of ongoing coalition negotiations for a clearer picture of the next government's policy trajectory.

Key risks to outlook

Our core scenario envisages only modest shifts in policy trajectory under the next government. However, there is a chance that fiscal policy becomes looser than we currently expect, which would pose an upside risk to our growth forecast. However, this also prompts us to revise our fiscal and debt forecasts, as it would likely push back the previous government's ambitious consolidation agenda.

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