ifo Institute More Pessimistic about German Economy in 2021
The ifo Institute is more pessimistic about economic development in Germany this year than it was in December. Its researchers now expect growth of 3.7 percent. Three months ago, their forecast was for 4.2 percent growth. “The coronavirus crisis is dragging on, and this is pushing back the expected strong upswing,” says Timo Wollmershäuser, Head of Forecasts at ifo. For 2022, the Institute now expects growth of 3.2 percent instead of 2.5 percent. Wollmershäuser puts the total cost of the coronavirus crisis for the years 2020 to 2022 at EUR 405 billion – measured in terms of forgone economic output.
According to the forecast, the number of unemployed will fall slightly: from 2.70 million in 2020 to 2.65 million this year and 2.44 million in 2022. This would bring the unemployment rate down from 5.9 percent to 5.8 percent and then 5.3 percent. At the same time, the ifo Institute expects consumer prices to rise more sharply, from plus 0.5 percent in 2020 to plus 2.4 percent this year. They are set to rise by 1.7 percent in 2022. The public deficit is expected to fall from EUR 139.6 billion to EUR 122.9 billion this year and subsequently to just EUR 61.2 billion next year. The internationally criticized current account surplus (exports and imports of goods and services, foreign interest and income from investments, transfers) will again increase sharply from EUR 231.9 billion to EUR 275.6 billion, then drop somewhat to EUR 263.5 billion. This would correspond first to 7.0 percent, then 7.8 percent, and finally 7.1 percent of economic output.
“However, the forecast depends heavily on the further course of the pandemic. If sales in the service businesses directly affected by the coronavirus crisis were to remain at the low level seen in the first quarter for another three months, then the increase in economic output this year would be 0.3 percentage points lower at just 3.4 percent,” Wollmershäuser says. “Growth in 2022 would then be 0.2 percentage points higher, also at 3.4 percent. However, this would increase the total cost of the coronavirus crisis, measured as a loss of economic output from 2020 to 2022, by EUR 13 billion.”
