The German government’s top economic advisers have cut their growth forecasts for this year, warning that the latest wave of Covid-19 is hurting the economy.
In their latest outlook, the German Council of Economic Experts now expect GDP to only rise by 3.1% in 2021, down from 3.7% previously forecast.
It forecasts that Germany’s economy will shrink by around 2 % in the first quarter of this year, due to “the renewed rise in infection rates in autumn 2020 and the restrictions that currently remain in place”.
But it should then return to “a path of recovery over the coming months”, as the vaccination campaign is accelerated as planned, the pandemic is contained and, consequently, restrictions are gradually eased, the GCEE predict.
The GCEE has also cut its forecast for eurozone growth this year, to 4.1% from 4.9% previously, explaining that:
Economic activity in the euro area is being curbed by the heightened infection rates and the resultant restrictions.
The GCEE predicts that Germany’s economy will return to its pre-crisis level at the turn of the year 2021/2022, and grow by 4% in 2022.
But it also warns that vaccination progress is crucial in getting the economy back to normal, saying:
The greatest risk going forward is posed by further developments in the coronavirus pandemic. Progress on vaccinations will be one of the key factors determining how swiftly the economy can normalise.
Germany is one of several countries who suspended use of the AstraZeneca vaccine this week, while reports of thromboembolic events, such as blood clots, among a small number of people who received the jab are investigated.
GCEE member Achim Truger says Germany’s service sector could ‘bounce back’ once the pandemic is under control.
“Once we manage to get the level of infections under control and vaccinate larger sections of the population, the services sector that has been hit hard by the contact restrictions and closures – such as hospitality and stationary retail – is likely to bounce back. This should help to boost growth,”.
Fellow council member Volker Wieland flags up the risk of a third wave of Covid-19 forcing new restrictions and factory closures.
“The greatest risk to the German economy is posed by a potential third wave of infections, especially if it were to lead to restrictions or even plant closures in industry,”.