German growth could miss Bundesbank forecast this year

Business

Economic growth in Germany could miss projections this year and the resurgence of the coronavirus pandemic may put unexpected strain on the economy in the autumn, the Bundesbank said in a monthly report on Monday.

Europe’s biggest economy is expected to grow by 3.7% this year and 5.2% in 2022 but the early weeks of the rebound were more timid than projected and that will likely weigh on the full-year figure as well, the Bundesbank said.

Germany is still likely to have enjoyed robust expansion over the summer months, with services benefiting from the easing of restrictions as infection numbers declined, boosting tourism income.

While some restrictions could be reintroduced in the autumn if infections continue to rise, they are unlikely to be as strict as in the past given Germany’s progress in vaccinating its population, the Bundesbank added.

But a drop in the pace of vaccinations does pose a risk and sentiment indicators are pointing to heightened concern as Europe faces the more infectious Delta variant of COVID-19.

“The Delta variant and a decline in the dynamics of vaccination could lead to stricter protective measures again,” the Bundesbank added. “This would then put a greater strain on the economy in the autumn quarter.”

The Bundesbank repeated its earlier view that inflation could approach 5% towards the end of the year, well above the European Central Bank’s 2% target, but will then fall back sharply early next year.