German growth seen strong in second half, China a worry - Bundesbank

FRANKFURT (Reuters) - German growth will remain strong in the second half of the year on rising consumption and growing exports but the global outlook is clouded by the increasing risk of a big economic slowdown in China, the Bundesbank said on Monday. The upbeat outlook comes after Germany, Europe's biggest economy, reported solid but unspectacular growth figures on Friday, which showed GDP expanding by 0.4 percent in the second quarter, shy of forecasts for 0.5 percent. The quarter also ended on a mixed note with falling output and exports but strong investments and unusually strong industrial orders, highlighting some of Europe's growth challenges after protracted downturn. Germany will benefit from big real income increases at home, the euro zone's recovery, the weaker euro and accelerating growth in the United States and Britain, two key trading partners, the German central bank said in a monthly economic report. "The conditions appear to be there in today's perspective to support relatively strong growth, driven by both domestic and external demand", the bank said. The Bundesbank also sounded an upbeat tone on Greece, arguing that the economy would gradually improve, benefiting from the bailout, tourism income and investments financed by European structural funds. Normalised bank operations will also help the Greek economy while the previous wage and fiscal adjustments should also make an impact. German lawmakers are due to vote on Wednesday on the 86-billion-euro bailout deal. German approval is not in doubt because of the support of parties like the Social Democrats and Greens. However, a rebellion by a large number of her conservative allies would be a blow for Chancellor Angela Merkel, who remains highly popular after 10 years in office. The Bundesbank was more cautious on China, which devalued its currency last week, raising fears that its outlook is worse than earlier expected with growth at its slowest in a quarter of a century. "The risks of a stronger economic slowdown remains high," the Bundesbank said. "The decision of the Chinese central bank to allow the yuan to depreciate against the U.S. dollar can be seen as evidence of the uncertainty." (Reporting by Balazs Koranyi; Addtional reporting by Paul Carrel; Editing by Toby Chopra)