--The German economy is seen growing 3.7% in 2021 and 3.9% in 2022

--A strong economic recovery is expected in the second half

--The economy is expected to return to normal output levels at the start of 2022


By Maria Martinez


The new lockdown in Germany will delay the economic recovery but as soon as the risks of infection have been averted, a strong recovery will begin, a group of German economic research institutes said.

In their joint spring report, economists forecast an increase in gross domestic product of 3.7% in 2021 and 3.9% in 2022. The new wave of infections and the associated containment measures led to the downward revision of the forecast for 2021 by 1 percentage point compared to the fall forecast of 2020.

"Economic output is likely to have dropped by 1.8% in the first quarter due to the continuing shutdown," Torsten Schmidt, chief economist at the Leibniz Institute for Economic Research, said.

The economy is expected to return to normal output levels at the start of 2022, according to the joint forecasts.

"We expect a vigorous expansion of economic activities as the measures are gradually lifted over the course of the six months through the summer, especially in the services sector that was particularly affected by the pandemic," Mr. Schmidt said.

Employment is also likely to gain momentum in view of the expected easing of restrictions, economists said. On average, employment is expected to rise by 26,000 over 2021. The rise is estimated at 539,000 over the coming year, with prepandemic levels being reached in the first half of 2022.

Public budgets are expected to show a deficit of 159 billion euros ($190 billion) in 2021, slightly higher than in the previous year. In relation to GDP, the general government budget deficit is expected to remain roughly the same at 4.5% in 2021 and to drop significantly to 1.6% in 2022.

How the pandemic develops remains the most significant downside risk to the outlook. Bottlenecks and delays might still occur in the delivery of vaccines and tests, the economic research groups warned.


Write to Maria Martinez at maria.martinez@wsj.com


(END) Dow Jones Newswires

April 15, 2021 04:18 ET (08:18 GMT)

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