German Economy Only Slowly Emerging from the Pandemic: DIW Economic Outlook Autumn 2021

Abstract

The German economy is taking longer than expected to overcome the pandemic: It is likely to increase by only 2.1 percent in 2021 and capacities remain markedly underutilized. In addition, global supply bottlenecks are affecting German industry, resulting in stalled domestic production despite high demand. Following a profitable summer due to low case numbers and progress in the vaccination campaign, the personal services sector is weakening again as infection rates rise once more. If the supply bottlenecks are solved in 2022, industry should take off and the German economy should record powerful growth of 4.9 percent. Although inflation remains moderate in the underlying trend, higher oil prices and the return to the normal value-added tax are driving the rate up to 3.0 percent in 2021. These effects will no longer apply in 2022. Nevertheless, inflation remains somewhat elevated at around 2.0 percent, as rising production costs due to a shortage of intermediary goods are partly passed on.