ifo Institute Lowers Growth Forecast to 3.3 Percent for Germany in 2021
The ifo Institute has lowered its forecast for economic growth for Germany in 2021. It now expects 3.3 percent growth, 0.4 percentage points lower than it did in March. In contrast, it raised its forecast for the coming year by 1.1 percentage points to 4.3 percent. “The main factor dampening growth in the short term are the bottlenecks in the supply of intermediate products,” explains Timo Wollmershäuser, Head of Forecasts at ifo. “Reopening businesses triggered a strong recovery, but this is now getting pushed back a bit further than we thought in the spring. The costs of the coronavirus crisis for the years 2020 to 2022 amount to EUR 382 billion. Our calculations assume that the German economy would have grown during that time by an average of 1.2 percent per year.”
Given the strong recovery, the number of short-time workers, which was still 2.3 million in May, is expected to fall rapidly and reach its pre-crisis level of about 100,000 next year. The number of unemployed people should fall somewhat more slowly, from 2.70 million (5.9 percent of the workforce) last year to 2.65 million (5.8 percent) this year and then 2.40 million (5.2 percent) next year. At the same time, the number of people in employment will rise from 44.82 million to 44.86 million this year and to 45.42 million next year.
ifo analysts expect the inflation rate to accelerate temporarily, from plus 0.6 percent last year to plus 2.6 percent this year, driven mainly by higher energy prices and the renewed increase in value-added tax. After that, the rise in consumer prices should level off again at plus 1.9 percent in 2022.
The German government’s funding gap is expected to initially widen slightly to EUR 150.4 billion in the 2021 election year, from EUR 149.2 billion last year. Next year, it is predicted to fall sharply to just EUR 49.6 billion, although that depends on the election results.
Foreign trade will increase significantly, with exports growing by 10.4 percent this year after contracting by 9.4 percent in 2020; imports should even grow by 11.4 percent after contracting by 8.4 percent last year. In 2022, the increases will be smaller: plus 5.6 percent in exports and plus 7.3 percent in imports. This means Germany’s much-criticized current account surplus will fall from EUR 231 billion to EUR 206 billion before reaching EUR 184 billion. Those figures represent 7.0 percent, 5.8 percent, and 4.9 percent of annual economic output respectively. The surplus would thus be below the 6.0 percent mark, which the EU considers critical, for the first time in years.
