Hope for a post-corona boom

The outlook for Germany’s economy is improving. The RWI economic research institute raised its growth expectations for 2021 from 3.6 to 3.7 percent. And for 2022, RWI expects gross domestic product to increase by 4.7 percent, instead of 3 percent as in the March forecast. Gross domestic product is expected to reach pre-crisis levels by the end of this year, the economic research institute explains.

The German Institute for Economic Research is similarly optimistic. The Berlin-based economists raised their forecast for economic growth in 2021 from 3.0 to 3.2 percent and for 2022 from 3.8 to 4.3 percent. And the Timocom transport barometer has also been above 80 since April.

Expected to be a good summer

“The economy in Germany is picking up again in the wake of the easing of infection control measures,” says RIW head of economic research Torsten Schmidt. And DIW President Marcel Fratzscher believes, “The German economy is likely to have a good summer, but it’s not out of the woods yet.” The risk of a setback in the fall is still high, he says, if the infection figures rise more sharply then than they are at the moment.

In the researchers’ view, the recovery in the service sectors is primarily responsible for the growth that is already being felt. The manufacturing sector, on the other hand, is still being held back by increasing supply bottlenecks for raw materials and intermediate products, analyzes the RWI.

Industry is not lacking in orders. According to the Federal Statistical Office, the order backlog grew by 2.9 percent in April compared to the previous month. The order backlog thus rose for the eleventh month in a row and has reached its highest level since the statistics were introduced in January 2015. Open orders increased by 2.4 percent from within Germany and by as much as 3.2 percent from abroad. Compared with February 2020 – the last month before the start of the corona-related restrictions in Germany – the level is now 11.4 percent higher, adjusted for seasonal and calendar effects.

Inflation rate rises noticeably

At the same time, the shortage of materials will initially keep prices high, according to RWI. As the bottlenecks are only likely to be eliminated gradually, the researchers suspect that price pressure will persist until the end of the year. For this year, RWI expects an average inflation rate of 2.5 percent. Next year, inflation is expected to average 1.9 percent. The DIW therefore expects an inflation rate of 2.7 percent in the current year. In Germany, inflation had recently risen for five months in a row and is now at 2.5 percent, the highest level since 2011, but Fratzscher sees this simply as a normalization after the Corona crisis, which is even desirable from the point of view of many companies.

“If prices rise, they will also become profitable again or more profitable,” he explained. That’s especially true for small and medium-sized companies, he said, which now need to pay down debt and rebuild reserves. Anyone who now paints the spectre of a major inflation on the wall is acting “dishonestly” in Fratzscher’s view.

Even if the incidences rise again: There is still hope that the overall situation will ease compared with the previous year.