Bundesbank says Delta could drag on economic growth

Germany's central bank cautioned that economic growth in 2021 might fall short of its projections last June.

The Bundesbank's projections were calling for a pace of gross domestic product growth of 3.7% in 2021 followed by an expansion of 5.2% in 2022.

In its monthly economic bulletin, the Bundesbank said that there was uncertainty around the potential further economic impact of the pandemic.

"For example, the Delta variant and vaccination slowdown could result in tighter restrictions being reimposed," the Buba said.

"However, this could then be expected to weigh more heavily on the economy in the fourth quarter."

That would come on top of a pace of economic growth that already fell short of expectations during the first half.

On the positive side of things, assuming that the economic recovery continued, thus allowing Berlin to phase out coronavirus-related measures, the central bank forecast that the public finances would recover "automatically" and the public deficit fall to around 1.5% of GDP, from over 5.0% in 2021.

As regards inflation, the Buba projected that consumer price gains would abate in several months' time, although it added that it remained to be seen to what extent producer price increases would be passed onto consumers.

Looking out to the end of the year, annual CPI inflation of 4.0-5.0% was possible, but the Buba said that "inflation is likely to stabilise again, to a marked extent, in early 2022."