In its latest semi-annual forecast for the German economy, the Bundesbank, Germany’s central bank, sharply cut its estimate for Europe’s largest economy over the next two years, even as new data showed the all-important manufacturing sector starting to recover from its recent doldrums.

According to this estimate, the country’s GDP next year will grow by one per cent, down from the two per cent it predicted in June. It also trimmed its estimate for 2016 to 1.6 per cent from 1.8 per cent.

Separately, data published by the German Economy Ministry shows that industrial production rose by 0.2 per cent in October compared to September, when it climbed a revised 1.1 per cent. This was the second monthly rise amid signs that a slow recovery is taking shape.

In the meantime, credit rating agency Standard & Poor’s (S&P) cut its rating on Italy’s sovereign from BBB to BBB-, just one notch above junk status. The reason cited by S&P was that weak economic growth and poor competitiveness undermined the sustainability of the country’s huge public debt. S&P also said the new rating carried a stable outlook. It forecast Italian economic growth would be just 0.2 per cent in 2015 and would average 0.5 per cent in 2014-2017. Italian sovereign bonds fell on the news.

Finally, the US non-farm economy created an adjusted 221,000 jobs in November, the most in one month since January 2012, the Labour Department said last week. That followed a 243,000 increase in October. Another positive surprise was that job gains in October and September were revised higher. Virtually every industry added employees, and many of the new jobs were in fields that pay well.

The unemployment rate stood at 5.8 per cent, unchanged from October but down from seven per cent in November 2013. Economists had forecast jobs growth of 230,000.

The report also showed signs that wage growth is picking up. Wages have barely budged during this recovery. If sustained, that could increase incomes and boost consumer spending during the Christmas period.

This article was compiled by Bank of Valletta for general information purposes only.