Germany raises growth forecast for 2021 to 3.5% after strong Q4

The German government has raised its growth forecast for this year to 3.5 per cent, compared with the 3 per cent growth it was expecting back in January, a source said, adding that the upward revision was justified by a stronger-than-expected fourth quarter.

The source added that the government expected Europe’s largest economy to expand by 3.6 per cent in 2022.

The government is due to present its 2021 economic growth forecast today (Tuesday).

Germany’s leading economic institutes said earlier this month they expected the gross domestic product to grow by 3.7 per cent this year and 3.9 per cent in 2022. German business morale improved only slightly in April as a third wave of COVID-19 infections and a semiconductor shortage in the motor vehicle sector slowed a recovery in Europe’s largest economy, a survey showed on Monday.

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 German business morale improved by less than expected in April as a third wave of COVID-19 infections and supply problems with components in the industrial sector slowed a recovery in Europe’s largest economy, a survey showed on Monday.

The Ifo institute said its business climate index edged up to 96.8 from 96.6 in March. A Reuters poll of analysts had pointed to a bigger increase to 97.8.

“Both the third wave of infections and bottlenecks in intermediate products are impeding Germany’s economic recovery,” Ifo President Clemens Fuest said in a statement.

Companies raised their assessment of the current business situation once again, but they were less optimistic about the coming six months, the survey showed.

The business climate in manufacturing improved further to reach its highest level in nearly three years, with industrial companies reporting full order books and humming factories. “The demand situation is still very good,” Fuest said.

But their business outlook was less optimistic as 45 per cent of companies reported bottlenecks in intermediate products, the highest value since 1991, the institute said.

The Ifo figures were broadly in line with the PMI survey from last week that showed factories continued to churn out goods at a near-record pace in April while activity in the services sector remained sluggish. The government is expected to raise its 2021 GDP growth forecast on Tuesday after Economy Minister Peter Altmaier hinted earlier this month that Berlin was mulling an upward revision to the 3 per cent estimate it presented in January.

Meanwhile the euro held at an eight-week high against the dollar on Monday despite a disappointing sentiment survey in Germany as expectations the US Federal Reserve will maintain its dovish stance at a policy meeting weighed on the greenback.