Germany Lifts GDP Forecast, Expects Consumer Spending Surge

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The German government raised its growth forecast for this year to 3.5% and expressed confidence that consumer spending will take off once the pandemic is under control and there is room to ease lockdown restrictions.

Manufacturing and exports will also be important drivers of the revival after last year’s contraction of around 5%, the Economy Ministry said Tuesday in Berlin. After raising its previous prediction for this year from 3%, the German government expects expansion to accelerate slightly next year to 3.6%.

“Today’s spring projection is encouraging despite the current serious infection situation,” Economy Minister Peter Altmaier said in an emailed statement. “Our economy is strong, robust and ready for a new start.”

The updated forecasts could have been a couple percentage points higher, “but we decided on a careful approach to avoid any disappointments,” he told reporters at a subsequent news conference. After a contraction of 1.7% in the first quarter, expansion will return and accelerate as the year progresses, he said.

Europe’s largest economy has suffered less during the coronavirus crisis than other developed nations, though the government doesn’t expect output to return to pre-pandemic levels until around the middle of next year. The new predictions are roughly in line with other forecasters, including a joint outlook published this month by Germany’s leading research institutes.

With most of the country still in partial lockdown and infection numbers stubbornly high, activity in the services sector has taken a severe hit, while manufacturing has been relatively robust.

Germany Lifts GDP Forecast, Expects Consumer Spending Surge

After a sluggish start, Germany’s vaccination drive is accelerating, which could help spur a revival as restrictions are lifted and consumers begin spending cash hoarded during the pandemic.

Still, the Ifo research institute’s latest gauge of sentiment showed businesses unexpectedly became more pessimistic about the outlook this month, with supply-chain constraints weighing on the recovery.

Chancellor Angela Merkel’s ruling coalition has made tens of billions of euros available to offset the impact of the pandemic, and Finance Minister Olaf Scholz has promised it will continue to help businesses and households for as long as necessary.

Robust Exports

A separate Ifo gauge of expectations published Tuesday showed that Germany’s export firms were the most optimistic in more than a decade this month.

“The outlook improved across almost all branches of industry,” Ifo President Clemens Fuest said in an emailed statement. “In many countries, industry is hardly affected by the pandemic,” he added. “Demand for German export goods will benefit significantly from this.”

The Economy Ministry said Tuesday it expects exports to increase by 9.2% this year and another 4.5% in 2022. In 2020, they plunged by 9.4%.

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