Coronavirus may make German economy miss growth forecasts, Bundesbank says

The German economy may miss growth forecasts this year as the coronavirus epidemic hits demand as well as supply in China, the country's central bank governor, Jens Weidmann, said on Friday.

Weidmann joined a number of European Central Bank policymakers in saying it was too early to gauge the economic fallout of coronavirus, but he acknowledged the Bundesbank's prediction of a 0.6% GDP expansion this year, which had already been halved from the previous forecast, may be out of date. "All in all, economic growth this year could come in slightly lower than our experts estimated in December," Weidmann said.

China is Germany's top source of imports and its third-largest export market. Investors were ramping up expectations for an ECB rate cut as soon as June on fears that coronavirus, now spreading to a number of European countries, could tip the world economy into recession.

Speaking in Brussels, Lithuania's central bank governor, Vitas Vasiliauskas, said he did not expect ECB policymakers to take any action when they met on March 12, but that they could call an emergency meeting if needed. Weidmann merely acknowledged that the latest events were lengthening the odds on a rate increase, previously expected for 2022. But he said the ECB should "not lose sight of the exit" from its ultra-easy policy of massive bond purchases and negative rates.

"The Governing Council must not lose sight of the exit from loose monetary policy," he said. "For the very loose monetary policy is also associated with risks and side effects." He also criticised the notion of raising the ECB's inflation target, saying its current formulation as a rate of price growth "below but close to 2%" was "understandable, forward-looking and realistic".

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