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Germany poised for big economic recovery: Ifo

May 28, 2020

The German economy is expected to shrink by more than 6% this year. But a new study found the country could be in for a big economic recovery next year.

Production line in the Porsche Factory in Stuttgart
Image: picture-alliance/dpa/M. Murat

The German economy could enjoy a strong recovery next year after experiencing a record-setting economic slump in 2020 due to the coronavirus outbreak, the Institute for Economic Research (Ifo), a Munich-based economic think tank, said on Thursday.

In an updated economic forecast, researchers reiterated that they expect the national economy to shrink by 6.6% in 2020, worse than a slump of 5.7% brought on by the 2009 financial crisis.

However, a recent survey indicates that the situation could make a drastic turnaround in 2021, when Ifo predicts that Germany's economy could grow by 10.2%.

Read more: Germany enters recession due to coronavirus

Lowest point to come in second quarter

The basis for the new forecast is the Ifo Institute's latest survey of 9,000 German companies.

On average, these businesses expect their own economic situation to normalize within nine months, Chief Economic Researcher Timo Wollmershäuser said.

"After a significant slump of 12.4% in the second quarter of 2020, the economy should recover by the middle of next year," he said, adding that only after that point would goods and services be produced on the same level as a situation without the coronavirus.

Best- and worst-case scenarios

In a best-case scenario, the economy could recover in about five months, the institute said. This would result in a more mild economic slump of just 3.9% in 2020.

But in a worst-case scenario, the recovery could also take as long as 16 months. The economy could then shrink by 9.3% this year, with growth of 9.5% forecast for 2021.

"In that case, the recovery would stretch into 2022," researchers said.

All three forecasts are based around the assumption that coronavirus restrictions in Germany continue to be gradually lifted and that the country isn't hit with a second wave of infections.

kp/aw (dpa, Reuters)
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