German central bank doubts economic outlook

BERLIN, Aug 19 (Xinhua): German economic outlook would not be as bright as previously expected due to geopolitical tensions, although overall upward trend would not change, warned the German central bank Bundesbank on Monday.
"The outlook for the German economy after mid-year has deteriorated due to unfavourable news related to international environment," said the Frankfurt-based central bank in its monthly report.
 "The expectation that the cyclical trend would strengthen further in the second half of 2014, which underlying the spring economic forecast, was in question because of current indicators," it said.
In its spring forecast, the bank expected the German economy to expand by 1.9 per cent in 2014. Following a growth of 0.7 per cent in the first quarter of 2014, the German economy shrank by 0.2 per cent during the period from April to June.
Recent data showed that geopolitical tensions, especially the crisis in Ukraine, sapped morale of German investors and enterprises. Munich-based Ifo institute found German business confidence slumped for third consecutive month in July. In June, both industrial orders and output declined.
Bundesbank said the intensified sanctions against Russia by the European Union and retaliation of governments would "not be without effect on foreign trade".
"Nevertheless, sentiments deteriorated from a high level, which in association with the still positive overall domestic demand speaks against a change of direction in economy," the central bank said.
Regarding the eurozone, the bank also warned that geopolitical tensions in eastern Europe and other parts of the world would "put stronger pressure on the sentiment".
 "After a stagnation in the second quarter, the eurozone would resume an upward movement, but will probably not reach the pace widely predicted in the spring," it said.