Ifo Institute cuts German growth forecasts

The ifo Institute has slashed its economic growth forecasts for Germany after a hoped-for summer recovery failed to emerge.

Publishing its autumn economic forecast, the institute cut its GDP growth expectations for 2021 by 0.8 percentage points to 2.5%, and raised them by the same amount for 2022, to 5.1%.

Timo Wollmershauser, head of forecasts, said: "The strong post-pandemic recovery that was originally expected in the summer has yet to materialise.

"Currently, industrial output is shrinking due to supply bottlenecks for key intermediate products. At the same time, service providers are seeing a strong recovered from the coronavirus crisis. The economy is divided."

Demand for a range of goods, including consumer durable and electronics, surged during the pandemic and suppliers worldwide have struggled to keep up.

"Global supply chains have been faced with enormous logistical challenges as a result of the greatly changed flow of goods," Wollmershauser noted.

Germany, the European Union’s largest economy, is heavily reliant on its manufacturing sector.

However, the ifo found the economy was faring better in other areas. Unemployment is expected to continuing falling, from 2.6m this year to 2.4m next year, and to 2.3m in 2023. Prices are expected to rise by 3.0% this year, but that will be the peak, with rises of 2.3% and 1.6% pencilled in for 2022 and 2023 respectively.

The deficit in the national budget is set to reach €157.3m in 2021 before shrinking to €52.1m in 2022 and returning to balance by 2023. "This forecast was made on the assumption that only th economic and fiscal policy measures currently adopted will be implemented," the ifo said.