Germany: ifo Institute Affirms 1.1 Percent Growth for 2020
The ifo Institute has reaffirmed its forecast regarding economic growth in Germany. “At present, a recession in the general economy is very unlikely. We anticipate economic growth of 1.1 percent for 2020, compared to 0.5 percent this year. We are even looking at 1.5 percent for 2021, one tenth of a point more than previously stated,” says Timo Wollmershaeuser, Head of Forecasts at the ifo Institute.
“Fiscal policy is also partly responsible for this gradual recovery. It is boosting the economy by way of relief on taxation and social insurance contributions, an expansion of government transfers, and an increase in government consumption and public investment expenditure. In each case, this amounts to almost EUR 25 billion per year, increasing GDP growth by approximately one-quarter of a percentage point,” Wollmershaeuser adds.
“However, the German economy remains splintered. While the performance of domestically oriented service providers and construction companies continues to improve, industry remains caught in recession,” Wollmershaeuser says. “The trade conflict pursued by the United States is hampering global trade and investment activity. This is hitting German industry particularly hard, as it specializes in intermediate and capital goods. The automotive sector, one of the key industries in Germany, is also facing particular challenges.” However, the most recent order intake levels, business expectations in the manufacturing sector, and a further increase in goods exports in October indicated that the free-fall has stopped and that, gradually, light is appearing at the end of the industrial economic tunnel.
The number of unemployed is expected to decline further from 2.27 million this year to 2.25 million next year and 2.20 million in 2021, bringing the unemployment rate down from 5.0 percent to 4.9 percent, and ultimately to 4.8 percent. The number of persons in employment is likely to break more records, rising from 45.25 million to 45.42 million and then to 45.60 million in 2021. The German government’s surplus will shrink from EUR 55.0 billion this year to EUR 30.5 billion in the coming year, dwindling to EUR 8.9 billion in 2021.
The subject of widespread international criticism, the current account balance (exports, imports, transfers) will continue to show a large surplus, from EUR 252 billion to EUR 271 billion before reaching EUR 276 billion. This represents 7.3 percent, 7.7 percent, and 7.5 percent of annual economic output respectively.
