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June 16, 2021, 5:05 a.m. EDT

Germany’s Ifo Institute cuts 2021 economic growth forecast to 3.3%

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By Maria Martinez

The Ifo Institute has lowered its forecast for economic growth for Germany in 2021 to 3.3% from 3.7% forecast in March, because of bottlenecks in the supply of intermediate products.

“Reopening businesses triggered a strong recovery, but this is now getting pushed back a bit further than we thought in the spring,” Timo Wollmershaeuser, head of forecasts at Ifo, said.

In contrast, the Ifo Institute raised its forecast for 2022 to 4.3% gross domestic product growth from 3.2% previously estimated.

According to the Ifo Institute calculations, the cost of the coronavirus crisis for the years 2020 to 2022 amounts to 382 billion euros ($463 billion). Given these estimates, the German economy would grow during that time period by an average of 1.2% per year.

Given the strong recovery, the number of short-time workers, which was still 2.3 million in May, is expected to fall rapidly and reach its pre-crisis level of about 100,000 next year, the Ifo Institute said.

The number of unemployed people should fall more slowly, from 2.70 million, or 5.9% of the workforce, in 2020 to 2.65 million, or 5.8%, this year and then 2.4 million, or 5.2%, in 2022, the Ifo Institute said.

Ifo’s analysts expect the inflation rate to accelerate temporarily, from 0.6% in 2020 to 2.6% this year, driven mainly by higher energy prices and the renewed increase in value-added tax. After that, the rise in consumer prices should level off again at 1.9% in 2022.

The German government’s funding gap is expected to initially widen slightly to EUR150.4 billion in 2021 from EUR149.2 billion in 2020. Next year, it is predicted to narrow sharply to EUR49.6 billion, although Ifo highlighted that this outcome depends on the election results.

Foreign trade will increase significantly, with exports growing by 10.4% this year after contracting by 9.4% in 2020. Imports should even grow by 11.4% after contracting by 8.4% last year. In 2022, the increases will be smaller, 5.6% in exports and 7.3% in imports, the Ifo Institute said.

This means Germany’s current-account surplus will fall from EUR231 billion to EUR206 billion before reaching EUR184 billion. The surplus would thus be below the 6.0% mark, which the European Union considers critical, for the first time in years in 2021 and 2022.

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

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