The German central bank said on Monday that Europe’s largest economy is likely to grow “very strongly” this summer, after its sharp slump in the first half of the year.
In its monthly report, the Bundesbank said that from today’s perspective, the “clear and broad-based recovery in macroeconomic performance which began after the low in April, will continue.”
The German economy shrunk by a record 10.1% in the second quarter, as lockdowns lifted only at the start of May. GDP is forecast to contract by just over 6% in 2020.
However, the Bundesbank notes that while the economy is improving, it will not catch up to pre-coronavirus levels in the summer, and it will be a way back to normality.
“There is also the big risk of setbacks, in particular with a view to the further course of the pandemic,” the central bankers wrote, adding that until there is a vaccine available, some parts of the service sector will remain restricted.
A number of European countries, including Germany, are currently experiencing increased in the number of COVID-19 cases, while others, like the US, are still seeing thousands of new virus cases daily.
Chancellor Angela Merkel’s deputy Olaf Scholz, said that he would like to see the country’s short-hours work scheme extended for a total of 24 months. The finance minister said business and employees need a clear signal that the government will be with them as long as the crisis continues.
The ongoing global uncertainty surrounding the pandemic is affecting German exports and investor confidence, the Bundesbank said.
However, it believes that a growth in investments in equipment as well as a boost in consumer spending, thanks in part to the German government’s temporary VAT cuts, will help the economy recover in the third quarter.
The ZEW survey of investor sentiment last week in Germany found that optimism was growing that there would be a “speedy recovery” from the economic damage of the pandemic.