By Rainer Buergin and Brian Parkin Dec. 16 (Bloomberg) -- German Chancellor Angela Merkel’s government may sell fewer bonds than it expects next year as growth in Europe’s biggest economy accelerates, according to economists and fixed-income strategists. The Federal Finance Agency is set to publish a breakdown of bond sales as soon as today after Merkel’s Cabinet approves the 2010 draft budget in Berlin. Germany plans to sell between 330 billion euros ($480 billion) and 350 billion euros in bonds next year, Deputy Finance Minister Steffen Kampeter said Dec. 13. The government bases its bond sales next year on its Oct. 16 estimate of 1.2 percent growth. That’s lower than the five most recent forecasts made by bodies including the Paris-based Organization for Economic Cooperation and Development, the Bundesbank and Merkel’s own council of economic advisers. “It’s possible that the actual sale will be less than they initially thought,” said Wilson Chin, a fixed-income analyst at ING Groep NV in Amsterdam, who forecasts 2 percent growth for Germany next year. “The funding plan they will announce this week is probably based on a more conservative growth forecast. They might find that the economy grows faster than expected.” German 10-year government bonds were little changed in early trading today, yielding 3.22 percent. The yield has declined from a 2009 high of 3.72 percent on June 5. At the same time, the benchmark DAX stock index has gained about 14 percent. Germany is recovering more quickly than economists anticipated from its deepest recession since World War II, helped by economic stimulus programs in 2009 and tax cuts planned for 2010. Bundesbank Forecast The Bundesbank on Dec. 4 raised its forecast to 1.6 percent growth next year, saying the economic outlook has “brightened perceptibly.” The Munich-based Ifo economic institute yesterday raised its outlook to 1.7 percent expansion after predicting a 0.3 percent contraction in June. “The government’s current economic growth forecast would seem overly pessimistic,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt, which expects Germany’s economy to grow by 2.3 percent next year. “This one assumption for formulating bond sales would merit a review, though other special factors probably play into the government’s planning.” The Soffin bank-rescue fund said Dec. 9 that banks have used 118 billion euros of the 400 billion euros in guarantees it has made available. Soffin has earned the government 441 million euros so far because none of the guarantees have been called, Spiegel magazine reported on Dec. 6. Bond sales may also be lower than planned if banks tap less in Soffin funds than had been expected, a Finance Ministry official said on Dec. 11. Out of Recession Germany’s economy emerged from recession in the second quarter and growth accelerated to 0.7 percent in the third. The government is spending 85 billion euros to stimulate activity, while demand for the country’s goods is growing as the global recovery gathers pace. That helps keep at bay unemployment, which fell for a fifth month in November in seasonally-adjusted terms. The labor market, which the government estimates will need 23.3 billion euros in additional federal funding in 2010, is “surprisingly robust” and unlikely to see an “abrupt worsening” in coming months, the Bundesbank said Dec. 14 in its monthly report. While the government plan foresees a 10.2 billion-euro additional grant to public health insurance coffers in 2010, the Bundesbank said wages are developing “more favorably” than thought and may bolster insurers’ revenues. Merkel’s draft budget shows net federal borrowing surging to 86 billion euros next year from 37 billion euros in 2009. Finance Minister Wolfgang Schaeuble has said the public-sector deficit at federal, state and municipal levels will grow to 6 percent of gross domestic product next year, the biggest since the inception of the euro in 1999. To contact the reporters on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net.

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