Wednesday, December 1st, 2021
“Tremendous Uncertainties”
OECD expects strong German growth
The German economy could recover noticeably in the coming year. However, the OECD points to a number of risks. These include the supply chains, the unclear course of the pandemic and inflation.
Despite delivery bottlenecks and the fourth corona wave, the industrial nations organization OECD believes that the German economy can make a strong recovery. In the coming year, the gross domestic product (GDP) is expected to increase by 3.9 percent, as the Organization for Economic Development and Cooperation (OECD) announced. The federal government is anticipating a somewhat stronger plus of 4.1 percent, and the economy even with 4.6 percent.
“We are cautiously optimistic,” said OECD economist Isabell Koske. “But there is enormous uncertainty and risks – from the Corona crisis to delivery bottlenecks to inflation.” For 2023, the OECD predicts an increase of 2.2 percent. For the year that is coming to an end, growth of 2.8 percent is expected.
“The recovery is being hampered by bottlenecks in key inputs in manufacturing,” said the OECD. However, given the record order backlog, there could be a strong recovery if the shortage subsides again. Private consumption should also increase noticeably in the next year. The low interest rates and the increasing pressure on capacity are encouraging companies to invest heavily.
The price hike is likely to ease in 2022, but remain at an elevated level. “The inflation trend remains a risk,” said Koske. “The gas reserves in Europe are at a very low level. Depending on the course of the winter, there may be further price increases here.” The delivery bottlenecks could also last longer than expected. “That could also have an impact on prices,” said the expert. At 5.2 percent, the inflation rate in Germany is currently at its highest level in almost 30 years.
Forecasts for USA and China lowered
The OECD also anticipates an economic recovery worldwide. This year, global economic output is expected to grow by 5.6 percent, then by 4.5 percent in 2022 and by 3.2 percent in 2023. However, the forecasts for China, the USA and the euro area have been lowered.
The organization expects US GDP to rise by only 5.6 (2021), 2.7 (2022) and 2.4 percent (2023, without giving any further reasons. The report only says that the The support measures taken by the government during the acute crisis have now expired, which is dampening growth. However, the savings overhang among consumers and companies should support growth for a few more quarters.
The lowering of the Chinese growth forecast is also relatively clear: the OECD expects GDP increases of 8.1, 5.1 and 5.1 percent. “The insolvency of a large real estate company is shaking financial markets and confidence in the sector, weakening real estate investment, a key growth engine,” the OECD says. The outlook for investment in manufacturing has also deteriorated due to temporary power outages in many provinces.
In comparison with this, the forecast cuts for the euro area remained moderate and were largely based on Germany. GDP increases of 5.2, 4.3 and 2.5 percent are now expected. The OECD notes that the rapid resumption growth has slowed due to bottlenecks in the supply chain, particularly in the construction and transportation sectors.
France believes the OECD is capable of 6.8 as well as 4.2 and 4.1 percent growth. The country is benefiting from the accelerated vaccination campaign and lower infection rates, which would have raised the labor force participation above its pre-Corona level. Italy’s growth prospects are therefore supported by fiscal policy, including funds from the “Next Generation EU” program. As a result, GDP is forecast to grow by 6.3 percent, then by 4.6 percent, and finally by 2.6 percent in 2023.