For other domestic demand sectors the outlook is also broadly favorable. Exceptionally low borrowing rates are giving a substantial boost to construction activity. With capacity utilization high, investment demand can be expected to remain strong as long as we do not see a radical blow to confidence regarding the economic future. On average, the German economy is likely to grow by 1.5 percent in 2012.
The world economy lost momentum in the first half of 2011. With budget deficits in industrial countries starting to be reined in and monetary policy returning to normal, especially in the emerging markets, the swift pace of expansion seen in 2010 could not be maintained. The early months of this year also saw additional dampening effects. In the industrial countries the erosion of purchasing power as a result of the pronounced rise in commodity prices precluded the transition towards more private demand-driven growth. In addition, production outages in Japan following the natural catastrophe and reactor accident in March had global repercussions, mainly via the disruption of supply chains. Industry was especially badly affected by the cloudier overall backdrop. The expansion of global industrial production ground to a halt in the second quarter. The widespread weakness spilled over into international trade which actually fell marginally on the first quarter.