Germany Cuts 2021 Economic Outlook Amid Lockdowns, Bottlenecks

Germany cut its prediction for economic growth as the extension of coronavirus lockdowns hits activity at the start of the year.

The government now expects a 3% expansion in 2021, down from 4.4% forecast at the end of October, according to a person familiar with its annual economic report to be published next week. Economy Minister Peter Altmaier is due to present the latest outlook at a news conference on Wednesday.

The downgrade -- which is in line with the Bundesbank’s prediction -- reflects deteriorating prospects across the euro zone as the bloc heads for a double-dip recession. Germany, the region’s largest economy, has fared better than many of its neighbors, in part thanks to generous government support, but is struggling with business disruptions and concern over vaccine shortages.

Germany Cuts 2021 Economic Outlook Amid Lockdowns, Bottlenecks

A survey of purchasing managers by IHS Markit published Friday suggested the German economy is barely growing in January. Manufacturers have stayed relatively robust, though they are now being battered by shortages of containers for deliveries and higher input prices. Private activity in the rest of the euro zone is shrinking, the survey showed.

“The impact of the new German lockdown has been mild so far” mainly because stellar industry performance has offset a slump in services, Bert Colijn, senior euro-zone economist at ING Groep NV, said in a report. But in both Germany and the wider euro area “the second wave is turning into a long drag on the economy with large differences between sectors emerging.”

What Bloomberg Economics Says

Euro-area PMIs are “consistent with the alternative, high-frequency indicators, such as electricity demand and mobility data, tracked by Bloomberg Economics. They suggest the level of activity in the monetary union was markedly lower in January than in December.”

-David Powell. To read his report, click here

German growth of 3% would follow a contraction of 5% in 2020. Most forecasts indicate that the economy will take until 2022 to recover the ground lost because of the pandemic.

The International Monetary Fund said this week that Chancellor Angela Merkel’s administration should consider additional aid for companies and maintain support for the labor market to avoid more permanent scars. IMF staff predicted a “choppy” and unevenly distributed rebound that will only strengthen once Covid-19 vaccines have been widely distributed.

Companies and investors are generally remaining optimistic that the recovery will come, even if delayed. IHS Markit’s report showed German manufacturing optimism at the highest since the data started being collected in 2012.

European Central Bank President Christine Lagarde had a similar assessment for the euro zone when she spoke on Thursday, after the Governing Council kept its policy settings unchanged at its first meeting of the year.

Germany’s updated forecast was reported earlier Friday by Der Spiegel magazine. A spokeswoman for the Economy Ministry declined to comment.

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