At pre-crisis level in the summer ?: IfW issues an optimistic economic forecast

Thursday March 18, 2021

At pre-crisis level in summer?
IfW issues an optimistic economic forecast

With a view to the third wave of infections, the economic wise men collect their economic forecast for 2021 in the middle of the week. The IfW, on the other hand, is much more optimistic about the future. Accordingly, the German economy could reach pre-crisis levels in the summer.

The Institute for the World Economy (IfW) is more optimistic about the German economy than the Federal Government and its Advisory Council. The Kiel researchers increased their forecast for the growth of the gross domestic product this year from 3.1 to 3.7 percent despite the beginning of the third corona wave.

"The pre-crisis level of economic output is likely to be exceeded in the third quarter of the current year," said the researchers around forecast chief Stefan Kooths. The government is only assuming 3.0 percent, the economists expect 3.1 percent and do not see the pre-crisis level reached until the turn of the year 2021/22. The IfW is forecasting growth of 4.8 percent for 2022. In 2020, Europe's largest economy collapsed by 4.9 percent due to the pandemic.

"As the vaccination campaign progresses, the economic burden caused by the pandemic is likely to subside and the recovery will continue at a rapid pace," the institute expects. This is likely to be due to exports, which are likely to increase by 12.8 percent this year "as the global economy continues to brighten". According to the forecast, consumption will also gradually pick up. "Since there is also a prospect of sustainable relaxation for many companies due to the availability of effective vaccines, there will probably not be any major declines in investments," it said.

The recovery on the labor market, on the other hand, is likely to take more time. On average over the year, the number of people in employment should not be higher than in 2020. "It will only increase noticeably again in the course of 2022," predicts the IfW. The situation in the state budget is unlikely to ease for the time being. The deficit is expected to be above four percent of gross domestic product again this year, before falling to 1.3 percent in 2022.

According to the IfW, the inflation rate will be well above the two percent mark in the current year. "However, this is largely due to temporary factors, so that the rate of inflation will probably decline again in the coming year." In particular, the end of the temporary VAT cut and the additional CO2 taxation are likely to cause prices to rise temporarily.