The strong impetus expected from the external sector will probably also boost investment in Germany. The substantial adjustments achieved by domestic firms in the past few years are also important in this connection. Other encouraging factors are that the cost of debt financing has been low for some time and equity prices are picking up significantly.
It is not yet clear to what extent exchange rate volatility will affect German propensity to invest. Price developments in Germany are still favourable. According to initial estimates, consumer prices in January were 1.3% above last year’s level. The high degree of price stability is an important factor in encouraging private consumption, which continues to suffer from the declining level of employment.