ifo Institute: Economy Shrinks Less than Expected
Germany is experiencing a milder slump than expected. Its economy will shrink by 5.2 percent this year, according to the ifo Institute. In the summer, ifo researchers had predicted growth of minus 6.7 percent. “The second-quarter decline was smaller than we had feared and the current recovery is proceeding better than we had expected,” says Timo Wollmershäuser, Head of Forecasts at ifo. Consequently, growth in economic output next year will be lower: the ifo Institute now expects it to amount to 5.1 percent instead of 6.4 percent. For 2022, the ifo Institute is anticipating growth of 1.7 percent.
“The degree of uncertainty in our forecasts is enormous because nobody knows how the coronavirus pandemic will develop, whether there will be a hard Brexit after all, and whether the trade wars will be resolved,” Wollmershäuser says.
The number of unemployed will rise from an average of 2.3 million last year to 2.7 million this year. Next year it will fall to 2.6 million and then to 2.5 million in 2022. In percentage terms, unemployment will rise from 5.0 percent to 5.9 percent this year. It will fall to 5.7 percent in 2021 and to 5.5 percent in the following year.
The government’s 2019 surplus of EUR 52.5 billion will plunge to minus EUR 170.6 billion this year in response to falling revenue and a drastic rise in expenditure to support the economy. Next year the deficit will amount to EUR 86.9 billion; in the year after next it will still be EUR 68.4 billion.
Germany’s much criticized current account surplus (exports, imports, services, transfers) will also fall this year, from EUR 244 billion to 215.4 billion, because exports will decline much faster than imports in 2020. Next year, however, the surplus will rise again to EUR 276.2 billion. In 2022 it will reach EUR 290.1 billion.
