German economic growth forecast reduced by 0.8 percentage points

German Economy
German Economy

One of Germany’s leading economic research institutes, ifo, has substantially lowered its growth forecast for the German economy.

This year, economic output is expected to increase by only 2.5 per cent, 0.8 percentage points less than previously predicted.

“The strong recovery after the coronavirus originally expected for the summer is being postponed further,” ifo chief economist Timo Wollmershaeuser said on Wednesday.

In 2020, Germany’s economic output slumped by 4.9 per cent compared to the previous year.

While the growth forecast for 2021 was reduced, the ifo economists raised their growth forecast for 2022 by 0.8 points to 5.1 per cent.

“Currently, industrial production is shrinking as a result of supply bottlenecks for important intermediate products,” Wollmershaeuser said.

Global demand for durable consumer goods and electronic goods had pushed many manufacturers to their capacity limits, and put stress on global supply chains. On the other hand, service providers are recovering.

“The economy is split,” Wollmershaeuser explained.

The number of unemployed should fall to 2.6 million this year and to 2.4 million in 2022.

“Short-time work has also been noticeably reduced and will reach its pre-crisis level next year,” the economists predicted.

The inflation rate is expected to rise to 3 per cent this year, and the institute expects inflation of 2.3 per cent next year.

The national deficit – the new debt of the federal government, states, municipalities and social security funds – is expected to reach 157 billion euros (184 billion dollars) this year and 52 billion next year.

Three other leading research institutes have also lowered their forecasts for the current year, now predicting between 2.1 and 3.5-per-cent growth.
The institutes are expected to present a joint autumn forecast in mid-October.

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