FRANKFURT (Bloomberg) — The Bundesbank cut its German economic forecasts through 2016 even as the country’s factory orders showed signs of a pick-up.

 

The Frankfurt-based central bank halved its forecast for growth in gross domestic product next year, predicting an expansion of 1 percent compared with its June outlook of 2 percent. Factory orders, a typically volatile signal of future growth, jumped 2.5 percent in October, or five times as much as the median estimate in a Bloomberg survey.

 

Europe’s largest economy is relying on domestic demand driven by record-low unemployment as it recovers from a contraction in Q2. It still remains hampered by an uneven and fragile recovery in the euro area and political tension with Russia, and the European Central Bank is considering adding more stimulus to the region.

 

“Given the overall tone and detail in these data, it still remains unclear to us what exactly caused the pothole over the summer,” said Greg Fuzesi, an economist at JPMorgan Chase & Co. in London. “Ultimately, it will be crucial however to see the surveys improve again as well. We think that this will happen.”

 

The euro was little changed at $1.24 at 10:07 a.m. CET and the yield on German 10-year bunds was down 2 basis points at 0.76 percent. The DAX Index of German stocks was up 1.2 percent.

 

German factory orders climbed for a second month in October, data from the Economy Ministry in Berlin showed. Domestic orders led the gain with a jump of 5.3 percent, compared with an increase of 0.6 percent in export orders. Investment goods rose 3 percent and basic goods advanced 2.5 percent, while orders for consumer goods fell 0.1 percent.

 

Other recent data has shown a mixed picture for the German economy. While business confidence increased for the first time in seven months in November, manufacturing and services expanded at the slowest pace in 16 months.

 

Deutsche Bahn AG, the largest supplier of overland transport in Europe, will invest 200 million euros, or $248 million, over the next three years to improve quality and punctuality in long-distance rail travel, according to Sueddeutsche Zeitung, citing an interview with chief executive officer Ruediger Grube.

 

“There is reason to hope that the current sluggish phase will prove to be short-lived,” Bundesbank president Jens Weidmann said in the Bundesbank report. The central bank said the country’s economy is in good shape and may benefit from greater export opportunities in 2015.

 

Even so, the Bundesbank cut its forecast for growth in real GDP this year to 1.4 percent from 1.9 percent. The economy will expand 1.6 percent in 2016, down from its earlier prediction of 1.8 percent, it said.

 

It reduced the projection for inflation in 2014 to 0.9 percent from 1.1 percent. Consumer prices will rise 1.1 percent next year and 1.8 percent in 2016, it said. The outlook does not incorporate the most-recent slump in oil prices after the Organization of Petroleum Exporting Countries decided not to ease a global glut of crude.

 

“If crude oil prices remain at this subdued level for an extended period of time, economic growth in 2015 and 2016 could turn out to be between 0.1 and 0.2 percentage point higher in each case,” Weidmann said. He has previously called lower energy costs a “mini stimulus package.”

 

Inflation in the euro area slowed to 0.3 percent in November, matching a five-year low and well below the ECB’s goal of just under 2 percent. The ECB on Thursday cut its forecasts for regional consumer prices and economic growth through 2016.

 

Risks to the region also include worsening political tension with Russia after the European Union imposed sanctions on the country because of its involvement in the Ukraine crisis.

 

The ECB’s Governing Council expects to consider a proposal for broad-based asset purchases including sovereign debt at its next monetary-policy meeting on Jan. 22, said two euro-area central-bank officials familiar with the deliberations.

 

No decision on implementing QE has been taken yet and the composition of the program may be influenced by incoming data, the people said, asking not to be identified because the discussions are private. An ECB spokesman declined to comment.

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