German Economy Forecast to Grow 2.4% in 2021 and 4.8% in 2022

By Maria Martinez

A complete normalization of contact-intensive activities isn't expected in the short term in Germany and supply bottlenecks are hampering manufacturing for the time being, the country's leading economic-research institutes said in a joint report.

"The Corona pandemic still shapes the economic situation in Germany," according to the joint economic forecasts report by the Ifo Institute, DIW Berlin, IfW Kiel, IWH and RWI.

The German economy will reach normal capacity utilization in the course of 2022. The economic research institutes forecast that gross domestic product will rise by 2.4% in 2021 and by 4.8% in 2022.

After new waves of infections had delayed the recovery during 2020 and 2021, GDP rose significantly since the infections subsided in spring. However, supply bottlenecks for intermediate products are hampering production in the manufacturing sector, the report said. As a result, only consumer-related service industries are growing.

The recovery will slow down in winter, since activity in the service sector will remain below the usual level during the cold season, even with low levels of infection, the report said. In addition, supply bottlenecks will continue to weigh on manufacturing production for the time being, it said.

The institutes expect consumer prices to rise by 3% in the current year and by 2.5% in 2022. The public budget deficit is likely to decline to 2.1% the next year from 4.9% in relation to GDP in the current year. Given the strong increase in nominal GDP, the government debt-to-GDP ratio is expected to decline to 67% in 2022 from 71% in 2021.

A return to normal capacity utilization will gradually overcome the economic consequences of the Covid-19 pandemic. "However, the challenges of climate change and the foreseeable lower economic growth due to a shrinking labor force will reduce consumption opportunities," said Oliver Holtemoeller, vice president at the Halle Institute for Economic Research.

Write to Maria Martinez at [e-mail]

(END) Dow Jones Newswires

10-14-21 0415ET