Country Economic Forecasts - Germany
The German economy avoided contraction in Q4 2020 thanks to the industrial rebound offsetting lockdown-related weakness in services. But this boost is set to fade as an easing of restrictions is unlikely in the near term, despite falling infection rates, given the latest risks from more infectious virus variants and slow vaccination progress. So GDP may fall moderately in Q1 this year. Overall, we now forecast 3.6% GDP growth in 2021, down from 3.8% seen last month, after last year’s 5.3% fall, with a return to pre-crisis GDP levels by end-2021.30195647515Industrial rebound is set to slow in early 2021, so lockdown-related services weakness will lead to moderate GDP contraction in Q100Industrial rebound is set to slow in early 2021, so lockdown-related services weakness will lead to moderate GDP contraction in Q1Industrial production ended 2021 on a solid note. It was flat in December but up 6.6% q/q in Q4, lifted by the rebound in global trade, dire restocking needs and a rise in car demand on back of purchase incentives. This strength offset the drag from services on the back of November’s lockdown-lite and its tightening in December. The latter also derailed the usual Christmas surge in retail sales, which plunged 9.6% m/m in December. But strong online and food sales still left them up 1.5% y/y.Easing manufacturing surveys and December’s 1.9% m/m fall in factory orders signal that the boost from industry is set to fade in early-2021. We are also sceptical that an early significant easing in containment measures to prop up services is likely. While lockdowns have brought infection numbers down to levels last seen in October, the government is concerned about the more infectious virus variants. So we have nudged down our Q1 GDP call to -0.7% q/q but still see strong growth by mid-year.2787651283280GDP fell 5.3% last year and is seen growing 3.6% in 2021 thanks to a strong rebound by mid-year00GDP fell 5.3% last year and is seen growing 3.6% in 2021 thanks to a strong rebound by mid-year Inflation surged to 1.0% in January from -0.3% in December. This was higher than forecast as the expected boost from the reversal of the VAT cut, a new carbon tax and rise in energy prices may have been amplified by delayed winter sales. The lift from the latter should fade in February so we stick with our view that inflation will average 1.8% in 2021 before slowing to 1.5% next year. Underlying price pressures will remain muted amid sluggish wage growth and subdued capacity utilisation.
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