German economy likely shrank 1.8% in first quarter due to lockdown, institutes say


BERLIN (Reuters) – Germany’s economy likely shrank 1.8% in the first quarter due to COVID-19 restrictions, leading economic institutes said on Thursday as they revised their joint growth forecasts for the more large economy of Europe.

FILE PHOTO: Dark clouds hang over the financial district as the spread of coronavirus disease (COVID-19) continues in Frankfurt, Germany March 16, 2021. REUTERS / Kai Pfaffenbach / File Photo

The revisions are the latest sign that the economy will need longer than initially thought to reach its pre-crisis level. A more contagious viral variant and a slow introduction of the vaccine complicate efforts to contain a third wave of infections.

Economy Minister Peter Altmaier said he did not expect the economy to reach pre-pandemic levels before the end of the year. But he added that the industrial sector was weathering the crisis relatively well thanks to strong demand abroad.

The institutes now expect gross domestic product growth of 3.7% this year, down from their previous forecast of 4.7%. But the institutes raised their GDP estimate for 2022 to 3.9% from 2.7%, expecting household spending to rebound once restrictions on coronaviruses are lifted again.

The institutes estimate that the COVID-19 restrictions have led to households saving some 200 billion euros ($ 239.54 billion), said Torsten Schmidt of the RWI institute. This money is expected to stimulate overall economic growth once restrictions are lifted, allowing consumers to start spending again during the summer.

The biggest downside risks to the joint forecast are further delays in vaccine deliveries and possible new viral mutations for which existing vaccines would offer little or no immunization, the institutes have warned.

The institutes’ GDP estimates form the basis of the government’s own economic growth forecast, which will be updated later this month.

In January, the government said it expected 3% GDP growth this year, following a 4.9% drop the previous year caused by the coronavirus.

Export-oriented manufacturers are currently enjoying higher demand from China and the United States, but domestically-oriented services suffer from extensive restrictions to contain a third wave of COVID-19 infections.

The institutes said they expected the current measures to be tightened again in the coming weeks before authorities relaxed them from mid-May. All restrictions are expected to be lifted in the third quarter, they said.

“During the easing, we expect a strong expansion of economic activity for the summer semester, especially in the service sector, which has been particularly affected by the pandemic,” said Schmidt of RWI. .

Reporting by Michael Nienaber; edited by Madeline Chambers, Larry King


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