Hot topics | Coronavirus pandemic

The Ifo Institute Has Improved Its Forecasts For A Reduction In German GDP In 2020

The Ifo Institute Has Improved Its Forecasts For A Reduction In German GDP In 2020

The downturn in the German economy was less significant than expected, according to the ifo Institute's autumn forecasts presented on Tuesday.

The Euro zone's largest economy will shrink by 5.2% in 2020, down from the 6.7% expected in the summer.

"The drop in Q2 was less than expected, and the current recovery is proceeding better than we expected," said Timo Wolmershauser, head of forecasting at Ifo.

Given the less significant expected contraction in activity this year, Germany's GDP growth rate in 2021 is also likely to be lower. The Ifo expects Germany's GDP to increase by 5.1% in 2021, rather than by 6.4% as previously forecast. In 2022, the German economy will grow by 1.7%, the Ifo expects.

"The degree of uncertainty is very high since no one can predict the further dynamics of the coronavirus pandemic, and it remains unclear whether Brexit will still be tough, as well as whether the trade wars will end," Wolmershauser added.

The number of unemployed people in Germany is likely to rise to 2.7 million in 2020, up from 2.3 million last year. In 2021, the figure will fall to 2.6 million people and fall to 2.5 million in 2022. Unemployment in 2020 will be 5.9% against 5.0%, but will fall to 5.7% in 2021 and will be equal to 5.5% in 2022.

The German budget surplus in 2019 was 52.5 billion euros. But in 2020, against the background of reduced tax revenues and a sharp increase in stimulus spending, it will turn into a deficit of 170.6 billion euros, according to the Ifo. Next year, the budget deficit will decrease to 86.9 billion euros, and in 2022 it will be 68.4 billion euros.

Germany's current account surplus will also shrink to 215.4 billion euros from 244 billion euros in 2020, helped by a drop in exports that far outstrips a decline in imports. In 2021, the figure will grow to 276.2 billion euros and reach 290.1 billion euros in 2022.

In Germany, economic output is expected to be 5.2 percent lower on average for the year than in 2019. Given the assumed pace of recovery, GDP will not reach its pre-crisis level until the fourth quarter of 2021. The average annual growth rate in the coming year will then be 5.1 percent. The recovery will continue in 2022 and GDP will continue to grow at an above-average rate of 1.7 percent.

You may also like: