German Institutes Cut 2021 Economic Outlook on Longer Lockdowns

Birgit Jennen and Carolynn Look
·1 min read

(Bloomberg) -- Germany’s leading research institutes cut their joint 2021 growth forecast for Europe’s biggest economy as prolonged lockdowns hold back the nation’s recovery.

The downgrade to a 3.7% expansion in gross domestic product, from 4.7% previously, reflects a sluggish vaccination campaign which has forced the government to extend virus restrictions. The outlook for 2022 was upgraded to 3.9% from 2.7%.

The economy likely shrank by 1.8% in the first quarter of this year, Torsten Schmidt, Economic Director of RWI Leibniz Institute for Economic Research, said in the report.

Germany has struggled to control a third wave of infections, and Chancellor Angela Merkel is seeking to impose even harsher curbs in virus hot spots. The institutes said they don’t expect rules to be loosened again until the middle of the second quarter, and that restrictions will likely remain in place until the end of the third quarter.

The twice-yearly outlook is prepared for the economy ministry by the DIW, Ifo, IfW, IWH and RWI institutes, and helps guide the government’s own forecasts and budget planning.

The government’s forecast is for growth of 3% this year, after a contraction of around 5% in 2020, and it expects a return to pre-pandemic levels of output in mid-2022. The economy ministry has said the signs point to a recovery over the rest of this year, and that a pickup in the pace of inoculations is fostering confidence.

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