Delivery problems are still slowing the upswing after the Corona crisis, but the economy should pick up strongly in the coming year. Like the International Monetary Fund, the leading economic institutes in Germany also expect the domestic economy to grow less this year than previously thought. In their autumn forecast, the research institutes are only assuming growth of 2.4 percent this year. In the spring they had forecast 3.7 percent. In return, economists expect a stronger upswing in 2022 than before. When it comes to inflation, they give the all-clear: the price increase will be lower again in the coming years.
Overall, the German economy is clearly recovering from the Corona crisis. The five economic institutes state that companies are hiring heavily again. However, many companies are suffering from the fact that microchips and other preliminary products are missing, also as a result of the global upswing after Corona. The industry produces less than at the beginning of the year. The researchers are therefore lowering their economic forecast. “In the spring we were too optimistic about the supply chain problems,” admitted Oliver Holtemöller from the Halle Institute for Economic Research (IWH).
In winter, the pandemic will also reduce growth again. Restaurants and other service providers are unlikely to receive as many customers as they can in normal times. Experts predict that if new virus variants emerge, this would put a strain on the global economy.
The pandemic will not have a significant impact on the economy until spring 2022. The researchers expect that the delivery problems will also resolve in the course of the year. They also assume that consumers will then spend significantly more money: some of the savings that they inevitably accumulated in the Corona crisis when shops and restaurants were closed. Next year, the economy is expected to grow by 4.8 percent – instead of just under four percent as previously predicted.
For the whole of 2021, inflation is estimated at three percent
Economists do not share the concern of many German citizens that prices will continue to rise sharply. “We can give the all-clear for the acute inflationary pressure,” says Stefan Kooths from the Kiel Institute for the World Economy. In September, the price increase was 4.1 percent year-on-year, primarily due to energy costs, higher than it has been in thirty years. For the whole of 2021, however, the institutes are only assuming three percent inflation. Timo Wollmershäuser from the Ifo Institute attributes half of this to the fact that VAT was raised to its usual level again this year – and that energy became cheaper during the Corona crisis and is now correspondingly more expensive.
“For many goods and services beyond energy, prices are already developing normally again,” said Wollmershäuser. The researchers predict that the energy will cause the price surge to slowly fade away. In the coming year they expect inflation of 2.5 percent. In the years that followed, the price increase fell back to rates of around two percent.
The economists warn against intervening in the gas price – that does not solve the problem. From their point of view, a price increase risk would be high wage agreements of more than four percent. However, they do not expect that. Consumer inflation expectations for the future have increased slightly, but only slightly, according to Oliver Holtemöller from the IWH. “Therefore, there are no signals that we will get permanently higher inflation.”
Aging, climate change, digitization: everything has an impact on the economy
The researchers are more likely to see risks for higher prices if one looks a few years into the future. As a result of the shrinking and aging population, companies will have fewer workers available. In addition, high expenditures are necessary to make Germany climate neutral as planned. Both lead to cost pressure that can affect prices – depending on how politicians, employees and companies behave.
The economists are calling on the new federal government to implement radical reforms. Climate protection must be achieved as efficiently as possible without going blindly into new technologies. Low-income citizens need compensation for rising costs. In addition, the state and companies would have to invest to digitize the country.
The government should also address the aging of the population. “Our current age system is not sustainable,” says Oliver Holtemöller. “The government should not expand the benefits of the pension insurance, but put the system on a stable basis.” The best way to do this is to combine several measures: a lower pension level, a later retirement age, higher social contributions and tax subsidies as well as more funding.