Germany’s recovery slows, institute slashes 2021 growth forecast

Author: Stefan Baumgarten

2021/09/23

LONDON (ICIS)--The global supply chain bottlenecks are slowing the recovery of Germany’s economy, the country’s Kiel Institute for the World Economy said in a report on Thursday.

The economy is not expected to recover to its pre-crisis level until Q1 2022 - half a year later than the institute previously anticipated.

The institute cut its 2021 GDP growth projection for Germany to 2.6%, from previously 3.9%.

However, for 2022 it raised the projection to 5.1%, from 4.8%.

“The German economy continues to recover from the COVID-19 crisis, but loses momentum during the winter term,” it said.

The ongoing precautionary anti-infection measures amid the coronavirus’ fourth wave and the supply bottlenecks for intermediate products would postpone the catch-up process in Germany’s economy to next year, it said.

Kiel’s projections for Germany’s GDP growth, 2021-2023:

2021 2022 2023
GDP growth: 2.6% 5.1% 2.3%

Overall, the pandemic is estimated to cost the German economy €320bn in terms of loss of economic output in the years 2020 to 2022, the institute said.

The supply-side bottlenecks are expected to dampen value added in the manufacturing sector by more than €40bn this year, much of which is likely to be made up once the bottlenecks are overcome, it added.

RISING ORDER BACKLOG
The institute noted that the gap between incoming orders and industrial production is widening and “assuming historically unprecedented dimensions”, primarily due to a lack of primary products.

Outside the ports of Los Angeles and China’s Ningbo-Zhoushan, 6% of global freight capacity is currently tied up in congestion, it said.

“This is bad for German economic performance and drives up prices," said the institute's president, Gabriel Felbermayr.

In related news, another institute, Munich-based Ifo, earlier this week cut its 2021 GDP growth projection for Germany to 2.5%, also citing impacts from the supply bottlenecks.

Last year, Europe’s largest economy shrank 4.6% amid the restrictions to contain the coronavirus pandemic.

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