Institutes expect German GDP to fall by 5.4 pct in 2020

DM Monitoring

BERLIN: Five leading German economic research institutes revised their last forecast for 2020 downwards by more than one percentage point and now expected German gross domestic product (GDP) to fall by 5.4 percent, according to a joint autumn forecast published on Wednesday.
The COVID-19 pandemic left “substantial marks” on the German economy and the impact on the economy was more severe than expected in spring, the five economic institutes said in a statement.
“Although a substantial part of the drop in output experienced in spring has already been recovered, the remaining catch-up process is the more difficult part of the return to normality,” said Stefan Kooths, head of forecasting at Kiel Institute for the World Economy (IfW Kiel).
The economic recovery in Germany was slowed down by industry sectors that were “particularly dependent on social contacts,” such as gastronomy, tourism, the event business and air traffic, the institutes noted.
“Activity in this part of the German economy will remain depressed for some time to come and will catch up with the rest of the economy only once measures to control the pandemic have largely been dropped, which we do not expect before next summer,” said Kooths.
Reluctance of German companies to invest was also slowing down the upswing because equity positions of many companies had worsened during the COVID-19 crisis, according to the forecast.
The pandemic also caused foreign trade to slump “drastically” in the first half of 2020, according to the forecast. Only Germany’s trade with China was on the rise again in the second quarter.
This positive development was mainly due to an earlier recovery of China from the COVID-19 crisis and the high demand by Germany for medical protective equipment and electronic devices, the forecast found.
The recovery process in China was already well advanced by international comparison and should continue. According to the forecast, China’s GDP is expected to grow by 1.4 percent this year, nine percent in 2021 and 5.5 percent in 2022.
The economic institutes expect German GDP to grow again by 4.7 percent in 2021 and 2.7 percent in 2022.
Pre-crisis levels of economic output in Germany would not be reached until the end of 2021, according to the forecast.
However, German GDP in 2021 would be 2.5 percent below the level that could have been achieved without the COVID-19 pandemic.
Also, the German economy was not expected to return to normal capacity utilization before the end of 2022, the economic institutes noted.