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Germany eyes hike in GDP growth forecast

·2-min read
FILE PHOTO: Shops affected by the COVID-19 lockdown in the western German city of Essen

BERLIN (Reuters) -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% for 2021, after it dropped 4.9% 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% this year, down from their previous forecast of 4.7% released last autumn.

But the institutes raised their GDP estimate for 2022 to 3.9% from 2.7%, 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% 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.

(Reporting by Michael Nienaber; editing by Madeline Chambers, Larry King)