Germany expects growth this year to be weaker than previously forecast, with the latest surge in coronavirus infections holding back economic activity and businesses only just beginning to see supply bottlenecks ease.
The government cut its 2022 outlook to 3.6%, down from a prediction of 4.1% in October. The Economy Ministry said the start of the year is particularly challenging for the country’s service sector, but that the recovery should gain speed throughout the course of the year.
“During the still-difficult economic rebound phase, we will continue aid programs for companies and furlough policies,” Economy Minister Robert Habeck said Wednesday. “With an increasing vaccination rate, it should soon be possible to contain the pandemic in a sustainable manner and to reduce crisis aid. Then the economic recovery will accelerate noticeably.”
German output contracted as much as 1% in the final quarter of last year, according to the Federal Statistics Office, held back in particular by a shortage of chips and other inputs needed to power its manufacturing-heavy economy. Yet signs are emerging that some of those constraints are starting to ease, which could allow industry to “expand significantly” in the course of 2022, the Economy Ministry said.
In December, the Bundesbank predicted an economic expansion of 4.2% this year. In a separate report earlier this week it said there was fourth-quarter activity likely saw a “slight” dip, and warned that inflation is likely to remain “extraordinarily high” in the short term -- a potential headwind for business.
The Economy Ministry said it’s keeping an eye on inflation, which it expects to slow “only in the course of the year.”
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