The German government’s top economic advisers have lowered their growth forecasts for this year, warning that the latest wave of Covid-19 is affecting the economy.
In their latest perspective, the German Council of Economic Experts now expects GDP to grow only by 3.1% in 2021, down from 3.7% previously forecast.
Germany’s economy is projected to shrink by about 2% in the first quarter of this year, due to “renewed increases in infection rates in the autumn of 2020 and the remaining restrictions in place”.
But it should then return to “a path to recovery in the coming months”, as the vaccination campaign is accelerated as planned, the pandemic is contained and, as a result, restrictions are gradually eased, according to the GCEE.
The ECtHR has also lowered its forecast for euro area growth this year to 4.1% from 4.9% previously, explaining that:
Economic activity in the euro area is limited by high infection rates and the resulting restrictions.
The GCEE predicts that Germany’s economy will return to its pre-crisis level in early 2021/2022 and grow by 4% in 2022.
But he also warns that vaccination progress is crucial to the normal recovery of the economy, saying:
The greatest risk in the future is the subsequent evolution of the coronavirus pandemic. Progress on vaccinations will be one of the key factors in determining how quickly the economy can recover.
Germany is one of several countries that has suspended the use of the AstraZeneca vaccine this week, while reports of thromboembolic events, such as blood clots, are being investigated among a small number of people who have received the jab.
GCEE member Achim Truger says Germany’s service sector could “come back” once the pandemic is brought under control.
“Once we manage to control the level of infections and vaccinate larger sections of the population, the service sector that has been severely affected by restrictions and closures – such as hospitality and stationary retail – is likely to return. This should help increase growth. “
Fellow member of the board Volker Wieland indicates the risk of a third wave of Covid-19 forcing new restrictions and the closure of the plant.
“The biggest risk to the German economy is a potential third wave of infections, especially if it would lead to restrictions or even the closure of plants in industry.”