The president of the German central bank has said the current party mood in Germany in the wake of the World Cup will not be enough to give a lasting boost to the euro zone's biggest economy.
'A great World Cup by itself can't keep the entire economy going,' Axel Weber said in an interview published in the daily Die Welt. He described the current feelgood sentiment as a short-term phenomenon.
The Bundesbank chief warned that German economic growth would slow next year as a result of the government's plans to raise VAT by three percentage points to 19% with effect from January 1.
The central bank is pencilling in German gross domestic product (GDP) growth of 1.5% this year and 1.1% next year. Coupled with high oil prices, which push up energy and fuel prices, the VAT hike will eat into disposable income and push up headline inflation, said Weber.
The ECB is concerned about the possibility of high oil prices triggering a so-called inflation spiral where unions demand higher wages to offset the loss in purchasing power from high energy prices.
The bank has already raised its key interest rates three times since December to help keep a lid on inflation and is expected to continue to tighten monetary conditions in the euro zone next month.
