German economic institutes cut 2021 GDP forecast

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BERLIN (Businesshala) – Germany’s top economic institutions cut their combined forecast for 2021 growth in Europe’s biggest economy by 2.4% on Thursday as supply constraints hampered manufacturing, but they cut shortfalls for next year. Extend your prediction.

FILE PHOTO: A truck drives as steam from five brown coal-fired power units of RWE, one of Europe’s largest power companies, in Cologne, Germany, northwest of Germany March 12, 2019 . REUTERS/Wolfgang Rattay /File photo

Five institutions – RWI in Essen, DIW in Berlin, IFO in Munich, IFW in Kiel and IWH in Halle – raised their 2022 forecasts from 3.9% to 4.8%, saying the economy will reach normal capacity utilization. The impact of the coronavirus pandemic gradually subsided as the year progressed.

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Businesshala first reported on Wednesday that institutions plan to cut their forecast for 2021 to 3.7%.

“The challenges of climate change and the reduction in economic growth due to a shrinking labor force will reduce consumption opportunities,” said IWH vice president Oliver Holtemöller.

Global manufacturing has been slammed by a shortage of components, closed ports and a lack of cargo containers. Labor market shortages have added to the disarray after the pandemic-induced shutdown last year.

The economy ministry said GDP growth in Germany was expected in the third quarter due to expansion in services, although growth was expected to stabilize until the end of 2021.

The government does not expect inflation to subside until next year, when the one-time effect will wear off. The current inflation rate of 4.1% is the highest level since 1993, mainly due to a significant increase in energy costs.

The five institutions expect inflation to be 2.5% in 2022 and 1.7% in 2023.

“We believe that monetary policy will be able to achieve its price stability target in the medium term. This will be an average inflation rate for consumer prices of 2% per year,” Holtemoeller said at a news conference.

The institutions said the current inflation forecast was based on the assumption that wages would rise 2 percentage points to 2.5% over the next few years. As suggested by the unions, if the collective wage rises more than this, it will significantly alter the situation and lead to a higher rate of inflation.

Reporting by Miranda Murray, Editing by Christy Knoll; Editing by John Stonestreet and Gareth Jones

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