Economic institutes cut German GDP forecast for 2021

Germany's five top economic institutes have cut their joint forecast for growth in 2021 in the country to 2.4% with supply chain disruptions hindering manufacturing, but the prediction for next year has been raised.

The five institutes, comprising of Berlin's DIW, Essen's RWI, Munich's Ifo, Kiel's IfW and Halle's IWH, raised the forecast for next year to 4.8% from 3.9%, saying that the economy would return to normal over the course of the year as the impact of Covid-19 gradually faded.

The news that the forecast for 2021 would be cut to 2.4% from 3.7% was first reported in Reuters.

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"The challenges of climate change and the foreseeable lower economic growth due to a shrinking labour force will reduce consumption opportunities," said IWH Vice President Oliver Holtemoeller.

The global manufacturing sector has been hit badly by component shortages, jammed ports and a lack of cargo containers. 

Germany's Economy Ministry said an increase in GDP was likely in Q3 as a result of expansion in services, though it is expected that growth will stagnate by the end of 2021.

The Ministry said it also does not expect any easing of inflation until 2022 when one-off effects come to an end. The current 4.1% rate of inflation is the highest Germany has seen since 1993, largely as a result of rising energy costs.

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The five institutes say they expect inflation to be 2.5% next year and 1.7% in 2023.

"We assume that monetary policy will be able to achieve its price stability goal in the medium term. That would be an average inflation rate for consumer prices of 2% per year," Holtemoeller told a news conference.

They added that the current forecast for inflation was based on the assumption that there would be a 2.5% rise in wages over the coming years. If wages collectively were to rise by more than that, as has been suggested by trade unions, it would change the situation drastically, leading to high inflation rates.

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