Leading economists significantly lower economic forecast for 2021

style="float: right; margin-bottom: 10px; font-weight: 600;"Thu 14th Oct, 2021

Strong growth, falling unemployment, lower government deficit: According to the leading economic institutes, the future German government can get going in its first year with an economic tailwind. Gross domestic product is expected to grow by 4.8 percent in 2022, twice as fast as this year's 2.4 percent, the researchers said on Thursday in their fall forecast, confirming a Reuters report on Wednesday.

In the spring, the institutes had only predicted growth of 3.9 percent for the coming year in their joint diagnosis for the German government. Due to the acute material bottlenecks in industry, the upswing in the year that is coming to an end will be a bit smaller: A plus of 3.7 percent had previously been expected here. In 2023, Europe's largest economy is expected to grow by 1.9 percent. In 2020, it shrank by 4.6 percent due to the Corona crisis.

"The economic situation in Germany continues to be marked by the Corona pandemic," the institutes said. "A full normalization of contact-intensive activities is not expected in the short term." In addition, supply bottlenecks - such as for semiconductors, which are essential for the automotive sector - are hampering the industry. "In the course of 2022, the German economy should return to normal capacity utilization," it said.

Inflation also increased in 2022

The situation on the labor market is expected to improve gradually. At just under 45.4 million, the number of people in work is expected to be above the pre-crisis level again next year and rise by almost 400,000 again in 2023. Unemployment is expected to fall to 2.356 million by then, but that would still be around 89,000 more than in 2019.

The upswing is also filling government coffers. This year, the deficit is still expected to be 173.7 billion euros, or 4.9 percent of gross domestic product, because of the Corona costs, but in 2022 it is expected to fall to 80.5, or 2.1 percent. In 2023, the black zero could be closer: The deficit is then expected to fall to 35.1 billion, or 0.9 percent.

The economists expect inflation to ease. Due to higher energy prices, inflation is likely to average 3.0 percent this year, the highest rate in 27 years. But it is expected to fall to 2.5 percent next year and 1.7 percent in 2023.

In September, consumer prices rose 4.1 percent, the fastest pace since 1993. This was also due to a number of special effects - such as the extremely low starting level for raw material prices, pandemic and lockdown-related catch-up effects, and the temporary reduction in VAT in the second half of 2020 to combat the Corona crisis.

The Joint Economic Forecast serves as the basis for the German government's own projections, which in turn form the basis for the tax estimate. The report is prepared under the leadership of RWI in Essen, DIW in Berlin, the Ifo Institute in Munich, IfW in Kiel and IWH in Halle.

Image by Mohamed Hassan


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