German Institutes Cut 2021 GDP Forecast on Longer Lockdowns

Germany’s leading research institutes cut their joint 2021 growth forecast for Europe’s biggest economy as prolonged lockdowns hold back the nation’s recovery.

The downgrade to a 3.7% expansion in gross domestic product, from 4.7% previously, reflects a sluggish vaccination campaign which has forced the government to extend virus restrictions. The outlook for 2022 was upgraded to 3.9% from 2.7%.

German Institutes Cut 2021 GDP Forecast on Longer Lockdowns

The economy likely shrank by 1.8% in the first quarter of this year, Torsten Schmidt, Economic Director of RWI Leibniz Institute for Economic Research, said in the report.

Germany has struggled to control a third wave of infections, and Chancellor Angela Merkel is seeking to impose even harsher curbs in virus hot spots. The institutes said they don’t expect rules to be loosened again until the middle of the second quarter, and that restrictions will likely remain in place until the end of the third quarter.

The twice-yearly outlook is prepared for the economy ministry by the DIW, Ifo, IfW, IWH and RWI institutes, and helps guide the government’s own forecasts and budget planning.

Robust Manufacturing

The government’s forecast is for growth of 3% this year, after a contraction of around 5% in 2020, and it expects a return to pre-pandemic levels of output in mid-2022. The economy ministry has said the signs point to a recovery over the rest of this year, and that a pickup in the pace of inoculations is fostering confidence.

Economy Minister Peter Altmaier said Thursday that he’ll publish an update to the government’s forecasts on April 27, and the prediction for this year would likely be “well above the previous forecast.”

“In particular, manufacturing is currently robust,” he said in an emailed statement. “However, we still have major problems in the area of retail and services,” he said.

Better Shape

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

“We must ensure that we can support companies and jobs with financial aid until the end of the crisis,” Scholz said during a lower house of parliament debate on the his supplementary budget for this year.

“We can afford to finance everything that is needed,” he said, adding that Germany’s budget will be in better shape than other countries after the crisis thanks to sensible policies in the past that laid a solid foundation.

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