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Germany's GDP Forecast Raised

08/19/2010

The first half of 2010 was clearly as challenging a period for the euro zone as it has experienced since the creation of the euro itself. The value of the euro sharply declined as fears of a liquidity crisis evolving into a solvency crisis rattled the global capital markets.

However, an obvious beneficiary of the crisis is Germany, the world's 4th largest economy and Europe's largest.  As the value of the currency depreciated, German exports surged, stabilizing the German economy and providing the groundwork for a V shaped recovery. This morning, the Bundesbank, the German Central Bank, provided the evidence that, in fact, the V shaped recovery is unfolding.

Highlights from the Bundesbank:

1. Raised 2010 GDP forecast to 3% from 1.9%
2. Inflation accelerated to 1.2% from 0.8% in July - a positive development - one we desire here in the U.S.
3. Producer Price Index surged to 3.7% from 1.7% in July - a positive development - one we desire here in the U.S
4. In Q2, private consumption, construction, investments and exports all rose sharply
5. Budget deficit for 2011 projected as 4% of GDP and 3% of GDP for 2012
6. Bundesbank sees no sign of credit crunch in the German economy

Euro Currency 8-19-08 to 8-19-10

Source: Bloomberg

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