Germany's Bundesbank Revise Lower 2013 Outlook

On Thursday, the president of the European Central Bank (ECB) Mario Draghi filled the market with pessimism in his press conference on the euro area outlook. The ECB has kept the key interest rates unchanged and has cut its growth outlook for the coming period. Today the Bundesbank (the central Bank of Germany) followed the footsteps of the ECB and revised lower the growth outlook for the coming period.

The Bundesbank expects that Germany will contract in the fourth quarter making this year’s growth 0.7% while continue weak with the start of 2013 and stagnate in the first quarter. It has also slashed the growth forecast for 2013 to 0.4% from 1.6% projected in June. Furthermore, it expects Germany to expand 1.9% in 2014.

Germany is the largest economy in Europe, the majority of their exports goes to the Euro Zone so it’s no surprise that their growth will decline, since demand has decreased in the Euro Zone. Germany is also the biggest contributor in the bailouts in Europe, a decline in growth could affect their future contribution.

What does this mean to the Euro? The Euro was already hammered yesterday after Draghi’s negative outlook for the coming quarters in the Euro Zone, so it is expected to drop more after the Bundesbank revision to growth outlook. However, the effect should be lower than yesterday, because the market has already absorbed the negative outlook for the Euro Zone and the euro reversed to the downside from fresh highs.

The EUR/USD is currently hovering around $1.2936 areas to extend the bearishness that started from the week's peak set at $1.3126 on Wednesday to surrender the previous weekly gains and heading to a bearish weekly start for December after three weeks of consecutive gains.