Germany expects gross domestic product to grow by 3.7% this year

Germany’s economy minister expects the government to significantly raise the 2021 growth forecast for Europe’s largest economy after the country’s leading economic institutes revised their own estimates.

“We’ll not only be able to stop the economic slump this year, we can reverse it and regain our old strength next year,” Peter Altmaier said on Thursday, adding he would present the government’s more optimistic growth outlook on April 27.

In January, the government predicted gross domestic product growth of 3 per cent for 2021, after it dropped 4.9 per cent the year before as Germany got caught up in the coronavirus pandemic.

Germany’s leading economic institutes said earlier on Thursday they expected GDP to grow by 3.7 per cent this year, down from their previous forecast of 4.7 per cent released last autumn.

But the institutes raised their GDP estimate for 2022 to 3.9 per cent from 2.7 per cent, expecting household spending to rebound once coronavirus restrictions are lifted again.

The revisions are the latest sign that the economy will need longer than initially thought to reach its pre-crisis level. A more contagious virus variant and a slow vaccine introduction are complicating efforts to contain a third wave of infections.

The institutes said the economy probably shrank by 1.8 per cent in the first quarter because of COVID-19 restrictions, but they added things would improve from the second quarter onwards.

The institutes estimated that restrictions have led households to save some 200 billion euros ($239.54 billion), Torsten Schmidt from the RWI institute said. That money is likely to boost overall economic growth once curbs are lifted, enabling consumers to start spending again during the summer.

The biggest downside risks to the joint forecast are further delays in vaccine deliveries and possible new virus mutations for which existing vaccines would only offer limited or no immunisation, the institutes warned.

The institutes’ GDP estimates form the basis for the government’s own economic growth forecast.

Export-oriented manufacturers are currently benefiting from higher demand from China and the United States, whereas domestically focussed services are suffering under extended restrictions to contain a third wave of COVID-19 infections.

The institutes said they expected current measures to be tightened again in the coming weeks before authorities ease them from mid-May and remove all restrictions in the third quarter.

“In the course of the easing, we expect a strong expansion of economic activity for the summer half of the year, especially in the service sector, which was particularly affected by the pandemic,” RWI’s Schmidt said.

Germany’s economic institutes will cut their joint 2021 growth forecast for Europe’s largest economy to 3.7 per cent from 4.7 per cent previously due to a longer than expected COVID-19 lockdown, two people familiar with the decision told Reuters on Wednesday.

The institutes, which are expected to release their joint growth forecast on Thursday, will lift their GDP growth estimate for 2022 to 3.9 per cent from 2.7 per cent previously as private consumption is expected to boost overall output, the sources added.

The institutes’ estimates form the basis for the government’s own growth forecast which the economy ministry will present later this month.

In January, the government said it expected gross domestic product to grow by 3 per cent this year, following a drop of 4.9 per cent in the previous year caused by the coronavirus.

The figures are the latest sign that the economy will need longer than initially thought to reach its pre-crisis level.

Export-oriented manufacturers are currently benefiting from higher demand from China and the United States, whereas the domestically focussed services sector is suffering under extended curbs to contain a third wave of COVID-19 infections.

Germany’s CPI Property Group and Aroundtown SA on Wednesday offered to buy London-listed Globalworth Real Estate Investments in a deal valued at about 1.57 billion euros ($1.88 billion).

Shareholders in Globalworth, which mainly operates in the office sector in Poland and Romania, will be entitled to get 7 euros per share in cash, CPI said.

The German consortium said it currently holds about 51.5 per cent of Guernsey-incorporated Globalworth.

The offer represents a premium of nearly 20 per cent to Globalworth’s last close.

Office real estate has taken a hit during the COVID-19 pandemic as restrictions forced people to work from home, while slow vaccination roll-outs in Europe has cast doubts on the speed of reopening and return to work plans.

CPI’s portfolio consists of office properties, retail, residential as well as hotels and resorts. Aroundtown invests mainly in commercial and residential real estate.

Globalworth, whose stock has lost about 17 per cent in market value so far this year after a 23 per cent fall in 2020, did not immediately respond to a request for comment.