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Tuesday, December 7, 2021

Germany’s IFO Institute slash 2021 GDP growth forecast for 2.5 percent

The Berlin-Germany IFO Economic Institute has downgraded its growth forecast for Europe’s largest economy for this year as supply disruptions and a lack of chips and other intermediate products slow the recovery from the Kovid-1 pandemic epidemic.

The institute now sees Germany’s gross domestic product (GDP) growing 2.5 percent this year, up 0.8 percent from the previous forecast and 5.1 percent the following year, 0.8 points.

The weak return expected in 2021 has led to a 6.6 percent decline in overall economic output in 2020, which is controlling the spread of highly contagious diseases due to coronavirus bans on public life and business activities.

The forecast for declining growth also shows that Germany’s next coalition government will have a stable recovery from Chancellor Angela Merkel, who is resigning after the September 2 election after 1 year in power.

“Strong recovery from the coronavirus crisis, originally expected for the summer, has been further delayed,” said Timo Olmersheuzer, chief economist at IFOR.

“Industrial production is currently shrinking as a result of disruption in the supply of important intermediate goods. At the same time, service providers are recovering strongly from the coronavirus crisis, “Olmershewser added.

In a separate forecast, the German Association of Private Sector Banks (BDB) gave a more optimistic growth outlook for 2021. It expects GDP growth to be 3.3 percent and 6.6 percent next year.

The government, which has so far forecast growth of 3.5 percent for this year and 3.6 percent for next, will update its estimates in October.

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“The biggest risk causing uncertainty for the outlook is the increase in the number of coronavirus infections and significant delivery and production disruptions that are particularly affecting German industry,” the BDB said.

Strong demand from abroad and private personal spending at home are still expected to drive recovery this year and later.

“We expect personal spending to grow 7 percent in 2022. This will be the strongest growth ever since the reunion (in 1990),” said Christian Osig, managing director of BDB.

Osig added that the problem of “compulsory storage” due to coronavirus restrictions seems to be a thing of the past, the effects of which will continue until next year.

Germany’s annual consumer price inflation could reach about 5 percent by the end of this year, according to Ifor Olmerscheuzer, because epidemic-related special factors such as a temporary VAT cut in the second half of 2020 are affecting the comparison.

But inflation will ease again in 2022, according to a forecast shared by the BDB Banking Association, which expects eurozone inflation to jump from 2.1 percent this year to 1.6 percent next year.

The ECB said, “The ECB will therefore likely keep key interest rates low until at least 20223. For banks, this means they will have to bear higher negative interest rates.”

Written by Michael Ninaber

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This News Originally From – The Epoch Times

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