IW Economic Forecast Winter 2021: Disrupted Production, Price Rises and Pandemic Policies

These factors are also hobbling global growth. Due to the sharp increase in production costs, consumer prices are now rising sharply, thus slowing the recovery in consumption. The steep upturn in infection rates in Germany since October 2021 will trigger a renewed slowdown in consumption and the relevant sectors of the economy in the 2021/2022 winter. The combined influence of disrupted production, rising prices and Covid19 regulations will further delay the return to economic normality. After growing by only 2 ½ per cent in 2021, the German economy will expand by just under 4 per cent in 2022. This is based on the assumption that, despite ongoing bottlenecks in some areas, the majority of the current disruptions to production will ease in the course of the year, thus also reducing inflationary pressures. The negative effects of the pandemic on the German labour market will be largely overcome in 2022. Employment will actually exceed pre-crisis levels, while at just under 2.4 million the number of unemployed will also be slightly higher. The unemployment rate will fall to 5 ¼ per cent. After the massive charges on government financing in 2020 and 2021, next year’s budget deficit will decline to 2 per cent of GDP and the government debt ratio will revert to a level of 70 per cent.