Economic institutes slash Germany’s growth forecast

Oct 14, 2021, 1:55 AM | Updated: 2:09 am

BERLIN (AP) — Germany’s leading economic institutes on Thursday slashed their forecast for Europe’s biggest economy, saying output is being held back by global supply bottlenecks and lingering restraints on personal contact amid the pandemic.

The experts cut their growth forecast for this year to 2.4% from the 3.7% they had forecast earlier this year.

They said, however, that during the course of 2022 the economy should return to normal capacity utilization as the adverse effects of the pandemic and supply bottlenecks are gradually overcome. They raised the 2022 growth forecast to 4.8% from 3.9% in 2022.

Germany’s manufacturing and export-heavy economy has been hit by shortages of a range of parts and raw materials as global supply chains struggle to cope with the rebound in demand post-pandemics, as well as by higher input prices.

That has led to talk of a “supply chain recession.” In particular, the auto industry has suffered from lack of semiconductor components for the many electronic functions in today’s automobiles, forcing them to cut back production. Unusually high natural gas prices have forced big chemical firms to cut back production of ammonia, a key ingredient in fertilizer.

Additionally, the report said that “a normalization of contact-intensive activities cannot be expected” in the current year. Service, sports and entertainment businesses have suffered large losses from the pandemic and still face some public reluctance as well as capacity limits and vaccination requirements for entry.

At the same time, consumers are expected to face higher inflation than has been usual in recent years. The institutes expect consumer prices to rise by 3% in the current year and by 2.5 % in 2022, while the public budget deficit is expected to fall from 4.9% in relation to gross domestic product in the current year to 2.1% in the following year.

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Economic institutes slash Germany’s growth forecast