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Germany's Ifo institute cuts 2021 GDP growth forecast to 4.2%

EconomyDec 16, 2020 04:40AM ET
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© Reuters. Chairs are seen put onto tables upside down at a closed restaurant as the spread of the coronavirus (COVID-19) disease continues in Munich

BERLIN (Reuters) - Germany's Ifo institute expects Europe's largest economy to recover less strongly than expected next year as a stricter lockdown to contain a second wave of infections in the COVID-19 pandemic holds back consumers and companies.

Chancellor Angela Merkel and state leaders imposed a "lockdown lite" from Nov. 2, under which restaurants and bars were closed but shops and schools were open. From Wednesday, stricter measures are in effect that shutter most stores as well as hair salons and other services.

Ifo on Wednesday cut its gross domestic product (GDP) growth forecast for next year to 4.2% from 5.1% previously. For 2022, Ifo raised its GDP forecast to 2.5% from 1.7%.

"The recovery is being pushed back because of the recent shutdown here and in other countries," Ifo chief economist Timo Wollmershaeuser said. So the production of goods and services would not reach its pre-crisis level until the end of 2021.

As a result of lockdown measures, Ifo expects the economy to shrink in the final quarter of this year. For 2020 as a whole, it predicts a plunge by 5.1%, unadjusted for calendar effects.

These forecasts include measures under Germany's "lockdown lite" from Nov. 2, which Ifo assumes will remain in place until end-March, but not the impact of stricter measures in effect from Dec. 16 until at least Jan. 10.

Ifo said it assumes that curbs will gradually be relaxed from April onwards and completely lifted by summer.

The institute expects exports to fall by 9.7% this year and to grow by 8.8% next while it forecasts imports to decline by 8.7% in 2020 and to rise by 6.8% in 2021. Germany's relatively large current account surplus is expected to increase further.

The Ifo forecasts followed a survey among purchasing managers that showed Germany's private sector remained resilient in December as manufacturing picked up steam and services partly recovered ahead of the stricter lockdown.

Germany's Ifo institute cuts 2021 GDP growth forecast to 4.2%
 

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