ifo Institute Lowers Growth Forecast to 4.2 Percent for 2021
The ifo Institute has lowered its forecast for economic growth in Germany for next year. Its researchers now expect the German economy to grow by 4.2 percent, compared to their earlier forecast of 5.1 percent. In return, they raised their forecast for 2022 to plus 2.5 percent from plus 1.7 percent. “Recent shutdowns in Germany and other countries are pushing the recovery back. Production of goods and services won’t reach pre-crisis levels until the end of 2021,” says Timo Wollmershäuser, Head of Forecasts at ifo. “The current year is likely to end with a further decline in gross domestic product as a result of the shutdown.”
Overall, the ifo Institute expects German economic output to have shrunk by 5.1 percent in 2020, compared with the researchers’ previous forecast of minus 5.2 percent. Their forecast is based on the assumption that the infection control measures in place since November will remain in force unchanged until March 2021. The present infection control measures will then be gradually relaxed as of April and completely abolished by the summer. The forecast did not take into account the closure of parts of the retail sector, which was decided last Sunday.
With these assumptions, the number of unemployed is expected to increase from 2.3 million (5.0 percent) in 2019 to 2.7 million (5.9 percent) in 2020 and then remain stable next year. For 2022, the ifo Institute is expecting the figure to fall to 2.5 million people (5.5 percent). At the same time, the number of people in employment will fall from 45.3 million in 2019 to 44.8 million in 2020. Next year, it will rise again to 44.9 million, reaching 45.3 million in 2022. After minus 9.7 percent growth in 2020, exports are expected to grow by 8.8 percent next year and by 6.1 percent in 2022. Meanwhile, imports will grow by 6.8 percent in 2021 and by 7.1 percent in 2022, after recording minus 8.7 percent this year. This means that the much criticized current account surplus (exports, imports, services, transfers) will swell from EUR 235.2 billion in 2020 to EUR 281.1 billion in 2022. The hole in Germany’s budget will shrink from EUR 160.5 billion this year to EUR 133.0 billion in the coming year and to EUR 84.3 billion in 2022.
The decision to shutter the stationary non-food retail trade between December 16, 2020 and January 10, 2021 will intensify the economic slump at the end of this year. It is important to note that December is the month with the highest sales in the retail sector, accounting for almost 10 percent of annual sales. However, it must be taken into account that online commerce should compensate for a significant part of these sales losses. According to estimates by the ifo Institute, the loss in value added associated with the partial closure of the retail sector will be EUR 1.15 billion in the fourth quarter and EUR 0.55 billion in the first quarter; this would exacerbate the fall in GDP in the fourth quarter of 2020 by 0.15 percentage points while adding 0.08 and 0.07 percentage points to GDP growth in the first and second quarters of 2021 respectively.
