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Economic institutes cut Germany's growth forecast

October 15, 2021

Experts say Germany's economy will grow by just 2.4% this year, but a stronger recovery is anticipated in 2022.

https://p.dw.com/p/41hTN
Mercedes cars to be exported overseas are loaded onto ships in Bremerhaven
The German economy is heavily reliant on exporting goods, such as automobilesImage: Getty Images/D. Hecker

A group of leading German economic institutes on Thursday slashed Germany's GDP growth forecast to 2.4% this year, citing the coronavirus pandemic and problems with the global supply chain.

What did the economists say?

In a joint statement, the five economic institutes — DIW, Ifo, IfW, IWH and RWI — said the pandemic "still shapes the economic situation in Germany."

The economists believe "contact-intensive activities" necessary for the economy are unlikely to resume in the short term, due to the pandemic. 

The service sector, in particular, is expected to underperform as Germany heads into the winter, with supply chain bottlenecks also "hampering" manufacturing.

Production lines at major German automobile companies such as Volkswagen and Opel have been slowed down due to a global lack of semiconductors, for example.

The experts had previously predicted that the economy would grow by 3.7% this year.

German restaurants still struggling

Bounceback expected in 2022

At the same time, the institutes raised the growth forecast for next year to 4.8% from 3.9%. They also slashed the budget deficit from 4.9% of GDP to a projected 2.1% in 2022.

Stefan Kooths, a research director at the Kiel Institute for the World Economy (IfW), said the economy would reach its "pre-crisis level" in the first quarter of 2022.

The pandemic could be less of a burden on the economy next year, the experts predict.

"However the challenges of climate change and the foreseeable lower economic growth due to a shrinking labor force will reduce consumption opportunities," Halle Institute for Economic Research (IWH) Vice President Oliver Holtemöller said.

Inflation is also another major challenge for the economy. Germany's inflation increased by 4.1% year-on-year in September, the largest jump in nearly 28 years. 

wd/nm (AFP, Reuters, dpa)