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After the fall of Corona in 2020, experts believe that the German economy will rise again next year. China’s rebound could help.
By Angela Göpfert, tagesschau.de
“Forecasting is difficult, especially when it comes to the future.” Regardless of whether this quote is from Mark Twain, Karl Valentin, or Winston Churchill – it has rarely been as appropriate as it was during the crown pandemic. The answer to the question of how the German economy will fare in 2021 is just as difficult.
How long will the current lockdown last? Do you have to squeeze? Will there be more blockages? How much vaccine can pharmaceutical and biotech companies supply? When will more vaccines be approved? How willing is the population to be vaccinated?
Institutes particularly at odds
The answers to all these and many other questions will determine how bleak or optimistic the outlook for the future of the German economy will be. That should explain why the economic forecasts of the leading economic research institutes for 2021 differ particularly widely. And why do you have to correct them over and over again. Often at last.
In December alone, the OECD lowered its forecast for German gross domestic product (GDP) growth in 2021 to 2.8 percent. The organization of industrial nations is therefore by far the most pessimistic.
Hard locking force correction
But the German Institute for Economic Research (DIW) now only expects German economic output to grow by 3.5 percent. In early December, before the strict lockdown was announced, Berlin economists had forecast a plus of 5.3 percent.
In their current calculations, they now assume that the total lockdown will have to be maintained until at least the end of January 2021. A “lockdown light” is expected to follow in February.
“Mini-recession” at the turn of the year?
Commerzbank chief economist Jörg Krämer is convinced: “Germany is threatened with a false economic start at the beginning of the year.” The Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation even sees “a certain risk of a new mini-recession” at the end of the year, that is, two consecutive quarters of slightly contracted economic output.
“The second wave of the corona pandemic deals a notable blow to the German economy, but does not reverse it,” says Guido Warlimont, spokesman for the Kiel Institute for the World Economy. The IfW recently revised its forecast lower by a substantial 1.7 percentage points to 3.1 percent.
RWI: The second lock is not as bad as the first
The RWI – Leibniz Institute for Economic Research is completely different: Essen economists expect a 4.9 percent increase in GDP by 2021 and are therefore among the absolute optimists.
“Stable foreign demand and economic policy measures ensure that the German economy is less affected by the current harsh lockdown than by the first one in the spring of this year,” said RWI chief economic officer Torsten Schmidt.
Two years lost?
RWI’s GDP forecast, like all other institutes, is based on the so-called positive base effect: after all, the GDP growth rate is the result of a comparison with the economic performance of the previous year. And 2020 was particularly weak due to the pandemic.
Therefore, the comparison of the absolute figures is also interesting: Deutsche Industriebank (IKB) expects that German economic power will not return to pre-crisis levels until the end of 2021.
Hope for a golden autumn
There is an agreement among economists on one point in particular: the long-awaited recovery should only really take hold in the second half of the year. The head of the Bundesbank, Jens Weidmann, relies on private consumption as a factor of hope for 2021. Some consumers will then be able to turn to unlimited resources, since they put more money on the high edge in the year Corona than ever.
Another great factor of hope is Asia, especially China, the country where the global pandemic began. “China has weathered the corona pandemic better than Europe economically, purchasing manager indices point to above-average economic growth,” said market expert Robert Rethfeld of Wellenreiter-Invest.
Industry as an engine?
German export-oriented industry in particular should benefit from this. Because while the service sector suffers from the current restrictions, the industry does not have to stand still. This is a big difference from the first lock. Key German industries, such as automotive, chemical and mechanical engineering, continue on a growth path. “Germany should benefit from an industrial boom cycle,” Rethfeld said.
Industry is particularly important for value creation in Germany. According to the World Bank, its share of GDP in 2019 was 26.8 percent. Other sectors, such as hotels and restaurants, which have been severely affected by the current blockade, only play a subordinate role in terms of overall economic output.
Scenarios for 2022 and 2023
The vision beyond 2021 also gives hope. By 2022, all major economic research institutes expect a significant growth acceleration. But this forecast is also fraught with great uncertainty.
The Bundesbank has calculated a scenario in which the restrictions should remain in a weakened form until 2023, for example because not enough people are vaccinated. The result is as clear as it is sobering: “Under these conditions, overall economic performance would suffer serious and permanent damage despite even greater support from public finances.”
