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IW-Forschungsgruppe Gesamtwirtschaftliche Analysen und Konjunktur IW-Trends No. 1 24. March 2021 IW Economic Forecast Spring 2021: Pandemic Sends a Divided Economy on a Rollercoaster Ride

The German economy is divided on both the supply and demand sides. Consumption and parts of the service economy are again experiencing sharp falls while exports and some industrial sectors are benefiting from a worldwide economic recovery.

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Pandemic Sends a Divided Economy on a Rollercoaster Ride
IW-Forschungsgruppe Gesamtwirtschaftliche Analysen und Konjunktur IW-Trends No. 1 24. March 2021

IW Economic Forecast Spring 2021: Pandemic Sends a Divided Economy on a Rollercoaster Ride

IW-Trends

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German Economic Institute (IW) German Economic Institute (IW)

The German economy is divided on both the supply and demand sides. Consumption and parts of the service economy are again experiencing sharp falls while exports and some industrial sectors are benefiting from a worldwide economic recovery.

Global business will grow by 5 per cent in 2021 but not uniformly: China and the USA are currently the pillars of the global economy, while the euro area is weakening due to a third wave of infections. The first quarter decline in Germany’s real GDP and the second quarter’s rising infection figures are again dampening expectations for 2021 as a whole. The German Economic Institute (IW) expects growth of only 3 per cent this year and a return to pre-crisis activity levels only early in 2022. Assuming that the pandemic is successfully suppressed and both competitiveness and Germany’s attractiveness as a location for investment hold up, the country’s economy should grow by a good 4 per cent in 2022. Having slumped by 6 per cent in 2020, private consumption will stagnate in 2021 as a result of the constraints on business. Fiscal changes will accelerate inflation, which will nonetheless remain below 2 per cent. Investment in machinery and equipment is picking up only slowly and is unlikely to make good the sharp declines of 2020 until next year, but investment in construction is making modest but steady progress. As the economy recovers, the number of those in gainful employment will enjoy an upturn but is not expected to regain the pre-crisis level of 2019 within the timescale of this forecast. A rising share of long-term unemployed will make it difficult to cut unemployment in Germany rapidly. Germany’s budget deficit will continue to rise, reaching some 4 ¾ per cent of GDP in 2021, with around 3 per cent expected in 2022.

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Pandemic Sends a Divided Economy on a Rollercoaster Ride
IW-Forschungsgruppe Gesamtwirtschaftliche Analysen und Konjunktur IW-Trends No. 1 24. March 2021

IW-Forschungsgruppe Gesamtwirtschaftliche Analysen und Konjunktur: Gespaltene Wirtschaft im Wechselbad der Pandemie - IW-Konjunkturprognose Frühjahr 2021

IW-Trends

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German Economic Institute (IW) German Economic Institute (IW)

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The Productivity Effects of Capital Formation in Germany
Michael Grömling IW-Trends No. 2 9. May 2022

The Productivity Effects of Capital Formation in Germany

Despite broad-based digitalisation, productivity advances in Germany in recent years have been considerably lower than in previous decades. This paper conducts a growth accounting which points to steeply declining stimuli from technical progress and especially ...

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Jürgen Matthes IW-Policy Paper No. 1 25. February 2022

Stability instead of government overreach

Contrary to what the German government seems to be aiming for, a reform of the Stability and Growth Pact (SGP) is necessary. The debt reduction rule forces highly indebted euro countries to reduce their debt too quickly and too damagingly for growth.

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