Ifo Institute expects growth of only 3.7 percent for 2022

Berlin The economic problems in Germany will last longer than previously feared due to the corona pandemic and ongoing delivery bottlenecks. The Ifo Institute has therefore significantly weakened its forecast for the next year after its forecast for the current year. For the gross domestic product (GDP) they only expect growth of 3.7 percent instead of the previously assumed 5.1 percent in 2022, as the economic researchers announced on Tuesday.

The economy will be “noticeably slowed down”, said Ifo economic chief Timo Wollmershäuser. Right now, Germany’s economy will even shrink. According to the institute, GDP in the current fourth quarter will be 0.5 percent lower than in the previous quarter and will only stagnate at the beginning of the year.

The hope of a major economic upturn after the corona crisis is thus shifting further. After economic output collapsed during the peak of the pandemic, growth should be caught up this year. However, increasing numbers of infections and, above all, considerable problems in international logistics prevent this. The upswing will be postponed to 2022, the experts forecast

But now it is becoming apparent that they also have to revise this outlook in part. The disruptions in the world economy continue to ensure that companies get too few and expensive materials, so that production stalls. The Ifo Institute expects this to continue until the middle of next year. There is currently no sign of any relaxation in the supply chains.

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In the current winter, the increased number of infections is depressing the mood. The exclusion of unvaccinated people from parts of public life and the general fear of infection will result in a drop in sales. Wollmershäuser justifies the curtailed economic forecast primarily with the end of the recovery in contact-intensive services.

The economy is unlikely to pick up until summer 2022

This was shown by very recent figures on reservations. “We are assuming that the infection process will remain so dynamic until the end of winter that voluntary contact restrictions will continue to burden consumption,” explained Wollmershäuser.

The hope now lies in the second half of 2022 and especially in the year after. For 2023, the Ifo Institute has now increased its forecast by 1.4 percentage points and expects growth of 2.9 percent – almost twice as high.

This forecast is fed by the high order backlog among German companies. Incoming orders had recently declined. According to Wollmershäuser, this is not a problem: “Even if nothing more is added or the orders only increase slightly, the companies will still have enough to do.” In 2021 alone, orders worth 40 billion euros would have accumulated. A further 30 to 40 billion euros would be added by the summer, when the supply chain problems are now expected to resolve.

Until that happens, the economy and consumers will have to continue to deal with rising prices. The inflation rate in November was 5.2 percent, the highest it has been in almost 30 years. Surprisingly, the Ifo Institute does not assume that the high inflation rates will normalize quickly.

On the contrary: economists even expect a slightly higher rate of inflation in 2022 than in the current year. They expect 3.1 percent for 2021 and 3.3 percent for 2022. After that, the price increases should return to normal proportions.

The current inflation rates would not be maintained, says Ifo President Clemens Fuest: “But we have strong signals from companies that significant price increases are imminent.” Fuest therefore sees the need for intervention by the European Central Bank (ECB), which has so far been loosening up Monetary policy does not want to be dissuaded. According to Fuest, an end to the bond purchases should be initiated.

Wollmershäuser also pointed to the planned increase in the minimum wage in Germany to twelve euros. That will push up the collectively agreed wages. “That would have the potential to become visible in the inflation rate,” said Wollmershäuser.

Federal government prepares business for hard winter

Even the Federal Ministry of Economics does not expect the economic situation to improve quickly. According to the federal government, the German economy has to prepare for a hard Corona winter. “In view of the current pandemic, the economic risks have recently increased again,” says the ministry’s current monthly report, which was published on Tuesday.

In the current quarter, economic output is therefore likely to be “rather weak”. This is mainly due to the current pandemic. The services would be slowed down by the 2G regulation.

Persistent delivery bottlenecks also had a negative impact in industry. “If the delivery bottlenecks resolve over the next year, there will be a significant acceleration in the economic recovery,” says the Ministry of Economics and Climate Protection, headed by Green Robert Habeck since last week.

Unlike the Ifo, however, the government is hoping that inflation will improve more quickly. “At the beginning of next year, after the special effects have expired, the upward trend in consumer prices is likely to weaken again noticeably,” said the ministry. These include VAT, which was lowered in the second half of 2020 in the fight against the Corona recession and is now back at the old level.

More: The risk of recession in Germany is increasing

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