The Ifo Institute reported on Wednesday that due to supply problems hindering the industry, the German economy will grow weaker than expected this year, but the strong recovery is only slightly delayed until 2022.
The Institute estimates that Europe’s largest economy will grow by 3.3% this year, reducing its March estimate by 0.4 percentage points.
Next year, activities should accelerate to 4.3%, which is 1.1 percentage points higher than the ifo forecast in early spring.
The Institute’s economist Timo Wollmershäuser explained: “First of all, the shortage of primary products will hinder economic development.”
Reuters recalled that German automakers Volkswagen and Daimler reported on Tuesday that due to semiconductor shortages, they will once again shorten working hours in some factories.
Wollmershäuser emphasized: “Due to the opening up of the economy, the recovery itself is very strong, and it only takes a little longer than we expected in March.”
If’s estimate is not as optimistic as the central bank’s estimate, the latter predicts that economic activity will grow by 3.7% this year. According to them, by 2022, activities should accelerate to 5.2%.
The ifa economist explained that, unlike the Bundesbank, the institute expects support for household spending to weaken slightly, because many consumers are unlikely to spend all their pandemic savings immediately.
IF estimates that the recovery from the COVID-19 pandemic and the supply bottleneck of chips, wood and other materials have also raised prices, so this year’s inflation rate will jump from 0.6% in 2020 to 2.6%. In 2022, price growth will slow by 1.9%.
A strong recovery may boost domestic demand, thereby boosting imports, and growth this year and next year should be stronger than exports.
Ifo pointed out that this will help Germany reduce its huge current account surplus (expressed as a percentage of GDP) to 5.8% and 4.9% this year and next year, respectively, bringing it below the EU ceiling for the first time in years.