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German economy ready for post-pandemic growth and price rebound, Bundesbank says

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Stores on Kaufinger Strasse are closed due to the coronavirus disease (COVID-19) pandemic in Munich, Germany on February 5, 2021. REUTERS / Michaela Rehle / File Photo

German production is rebounding from its pandemic-induced collapse and inflation could rise faster than expected, potentially affecting the behavior of the economy, the German central bank said on Friday.

The Bundesbank has raised its growth and inflation forecasts for this year and the next, assuming that the coronavirus epidemic will be contained quickly and sustainably by the vaccination campaign and that restrictions will soon be relaxed.

He now expects the German economy to reach pre-pandemic levels as early as the next quarter, growing 3.7% this year, 5.2% next year and 1.7%. % in 2023.

“The German economy is overcoming the crisis linked to the pandemic,” said Bundesbank President Jens Weidmann.

The German central bank also raised its inflation forecast for this year and the next, warning that there were still “upside risks”.

It has now seen inflation at 2.6% this year, which would be the highest since 2008 and well above the European Central Bank’s target of price growth “below but close to 2%”.

But the Bundesbank downplayed the significance of the surge, blaming it mainly on energy prices and fiscal effects.

Without these, inflation would be just 1%, in line with last year and well below the 2019 level, BuBa said.

But he still warned that the sudden surge in prices, which will see inflation hit 4% by the end of 2021, could affect perceptions after a long period of low inflation.

“The exceptionally high inflation rates, by German standards, forecast for the second half of 2021 could eventually change the perceptions and expectations of economic agents in terms of inflation,” he said.

“As a result, wage and price fixing behavior could change and exert additional inflationary pressure. This would be particularly the case if headline price inflation in the near future were to be even higher than that estimated here.”

The German consumer price index hit a 10-year high of 2.4% in May.

But inflation, normally a hot topic in a savings-oriented country, has yet to become an issue in the election campaign, with all major parties agreeing with Weidmann’s generally hawkish view that the jump will probably be temporary.

The ECB pledged to maintain plenty of stimulus measures on Thursday despite the brighter outlook, although three policymakers opposed the move at the meeting.

(December forecast in brackets)

Our standards: Thomson Reuters Trust Principles.

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