Europe's top economic institutes raise forecast for 2021 growth

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Europe's top economic institutes raise forecast for 2021 growth

Berlin Reuters - Europe's top economic institutes raised their joint forecast for 2021 growth in Germany on Thursday, as supply bottlenecks hamper manufacturing, but cut their forecast for next year.

The five institutes - the RWI in Essen, the DIW in Berlin, the Ifo in Kiel, the IfW in Kiel and Halle's IWH - raised their forecast for 2022 to 4.8% from 3.9%, saying the economy would reach normal capacity utilisation over the course of the year as the impact of coronavirus pandemic gradually eased.

Reuters first reported on Wednesday that the institutes planned to cut their forecast for 2021, which had stood at 3.7%.

The challenges of climate change and the foreseeable lower economic growth due to a shrinking labour force will reduce consumption opportunities, said IWH Vice President Oliver Holtemoeller.

Global manufacturing is slammed by shortages of components, clogged ports and a lack of cargo containers. Following epidemic-induced shutdowns in August last year, a labour market crunch has added to the disarray.

The Economy Ministry said a GDP increase was likely in Germany in the third quarter thanks to expansion in services, although growth was expected to stagnate towards the end of 2021.

The government cannot expect inflation to decrease until next year, when one-off effects run out. The current inflation rate is 4.1% since 1993, in part due to significant increases in energy costs.

The five institutes expect inflation to be 2.5% in 2022 and 1.7% in 2023.

We assume that monetary policy will be able to achieve its price stability goal in the medium term. That would be an average inflation rate for consumer prices of 2% per year, said Holtemoeller at a news conference.

The institutes said the current inflation forecast was based on an assumption that wages would increase by 2 percentage points to 2.5% in the next few years. If the collective wages increase more than that, as unions suggested, this would change the situation significantly and lead to high inflation rates, they said.