The German [economy][1] is set to log a less severe contraction this year as the easing of Covid-19 containment measures boosted the third quarter growth, Bundesbank said in its semi-annual report released Friday.
The economy is projected to shrink 5.5 percent this year instead of -7.1 percent projected in June.
The economic recovery is forecast to be interrupted in the final quarter of 2020 and in the first quarter of 2021 with the resurgence of the pandemic.
“We expect the containment measures to be loosened gradually in spring 2021 thanks to medical advances and consumption opportunities to be taken again,” Bundesbank President Jens Weidmann, said.
The bank expects strong economic growth of 3 percent and 4.5 percent for 2021 and 2022. But these rates were smaller than the earlier forecast of 3.2 percent and 3.8 percent for 2021 and 2022, respectively.
Real GDP will return to its pre-crisis level at the beginning of 2022, and potential output will follow suit only a little later, the bank said.
According to latest projection, the inflation rate in 2020 will go down significantly to 0.4 percent reflecting the temporary cut in Value Added Tax rates and the fall in crude oil prices.
However, next year with the reversal of the VAT cut and the introduction of CO2 emission certificates, prices will rise by 1.8 percent, the bank said. Inflation is seen at 1.3 percent in 2022 and 1.6 percent in 2023.
In June, the bank had projected 0.8 percent inflation for 2020 and 1.1 percent for 2021.
The general government deficit is forecast to reach around 5 percent of GDP this year, and the Maastricht debt ratio will rise to approximately 70 percent.
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