Germany cuts deficit forecast to 1.5%

Frankfurt - Germany on Monday cut its forecast for this year's public deficit to 1.5% from a previous estimation of 2.5%, in a monthly report published on the finance ministry's website.

Under terms of the European Union's Stability and Growth Pact, governments are not supposed to exceed a public deficit of 3.0%, and are expected to work towards a balance or even surplus in times of economic growth.

Germany, which underwrites a large share of the eurozone's rescue packages, is getting its own finances in order with the help of strong economic growth.

The narrowing public deficit might give the government a chance to implement tax cuts in time for elections in 2013.

That could help boost domestic consumption, which appears threatened by widespread discussion of bail-out packages for partner countries on the eurozone's southern rim.

"Headlines urging readers to 'save your money' in parts of the German weekend press illustrate the confidence shock," Berenberg Bank chief economist Holger Schmieding said on  Monday.

"Even people with comfortable real incomes may raise their savings rate and curtail spending for a while," he warned.