Brussels (Brussels Morning) Germany’s Ifo Institute for Economic Research lowered the 2021 GDP growth forecast 0.9 percentage points, from 5.1% to 4.2%, Reuters reported today, Wednesday.
Pointing to the stricter lockdown imposed to curtail the second wave of coronavirus infections, Ifo is now predicting that the German economy will not recover as strongly as had been expected previously.
Germany’s Chancellor Angela Merkel and leaders of German states had agreed on a less severe lockdown on 2 November, but imposed more severe restrictions today in an effort to curb the spread of coronavirus. According to new restrictions, most stores are to remain closed, negatively impacting businesses and consumers.
Ifo’s forecasts
While Ifo lowered its expectation for GDP growth in 2021, the institute raised its 2022 forecast from 1.7% to 2.5%. Timo Wollmershäuser, Ifo’s head of Forecasts, ascribed the delay in economic recovery to the latest restrictions in Germany and neighbouring countries.
He predicts production of goods and services will not return to pre-crisis levels until the end of next year. Meanwhile, Ifo expects GDP to drop in the final quarter of this year and show an overall decline of 5.1% for 2020 as a whole.
The institute predicts exports will shrink by 9.7% this year but that growth of 8.8% will follow in 2021. Imports are expected to drop by 8.7% this year, with a 6.8% growth rate next year, an indication that foreign trade surplus should increase further.
The forecasts are based on the assumption that less severe restrictions imposed at the start of November will remain in place until the end of March, but do not take into account the effects of more severe measures imposed this month. Ifo expects authorities to start phasing out restrictions in April and lift them completely by summer.
IHS Markit’s purchasing managers’ index (PMI) increased from 51.7 points in November to 52.5 this month, showing the resilience of Germany’s private sector, Reuters reports. The PMI tracks the sectors of manufacturing and services, which account for more than two-thirds of the German economy.
