Investor Alert

New York Markets Close in:

Sept. 22, 2020, 4:43 a.m. EDT

German economic slump milder than forecast: Ifo

By Maria Martinez

The German economy is experiencing a milder slump than expected, the German Ifo Institute said in the presentation of its Autumn forecasts.

The eurozone's largest economy will shrink 5.2% this year, according to the Ifo Institute. In the summer, Ifo had predicted a 6.7% contraction.

"The second-quarter decline was smaller than we had feared and the current recovery is proceeding better than we had expected," said Timo Wollmershauser, head of forecasts at Ifo.

As the contraction currently expected is smaller than previously forecast, economic growth next year will be correspondingly lower. Ifo expects 5.1% growth in 2021 instead of 6.4%. For 2022, Ifo anticipates growth of 1.7%.

"The degree of uncertainty in our forecasts is enormous because nobody knows how the coronavirus pandemic will develop, whether there will be a hard Brexit after all, and whether the trade wars will be resolved," Mr. Wollmershauser said.

Unemployment is expected to rise to 2.7 million this year from an average of 2.3 million last year. In 2021, it will fall to 2.6 million and then to 2.5 million in 2022. In percentage terms, unemployment will rise to 5.9% this year from 5.0%. It will fall to 5.7% in 2021 and to 5.5% in the following year.

The German government's 2019 surplus of EUR52.5 billion will plunge to a deficit of EUR170.6 billion this year in response to falling revenue and a drastic rise in expenditure to support the economy, Ifo said. Next year the deficit will amount to EUR86.9 billion and in 2022 it will still be EUR68.4 billion.

Germany's current account surplus --which includes exports, imports, services and transfers-- will also fall in 2020 to EUR215.4 billion from EUR244 billion, driven by a decline in exports much faster than in imports, Ifo said. Next year, however, the surplus will rise again to EUR276.2 billion and it will reach EUR290.1 billion in 2022.

Write to Maria Martinez at maria.martinez@wsj.com

Link to MarketWatch's Slice.