Coronavirus latest: Europe’s manufacturing rebound runs out of steam

Martin Arnold in Frankfurt

Germany’s five leading economic research institutes cut their bi-annual forecasts for this year and next year, warning that production capacity would remain about 1 per cent below pre-coronavirus forecasts in the medium term.

In updated forecasts, the researchers said they expected the German economy to contract 5.4 per cent this year, deeper than the decline of 4.2 per cent they predicted in April.

They also cut their forecast for growth next year from 5.8 per cent to 4.7 per cent, while issuing a new prediction for growth of 2.7 per cent in 2022.

“Although a substantial part of the drop in output experienced in spring has already been recovered, the remaining catch-up process is the more difficult part of the return to normality,” said Stefan Kooths, head of forecasting at the Kiel Institute.

He said the economic recovery was being held back by the pandemic’s impact on sectors such as restaurants, tourism, trade shows, and airlines, adding these areas would only “catch up with the rest of the economy only once measures to control the pandemic have largely been dropped, which we do not expect before next summer”.

Warning that 820,000 jobs had been lost in Germany by the middle of the year because of the fallout from the pandemic, the institutes forecast that unemployment would rise from 2.27m people last year to 2.72m by next year.

Olaf Scholz, Germany’s finance minister, responded to the new forecasts by saying: “Now we mustn’t get careless, otherwise the rapid upswing will be lost very quickly.”

The forecasts were produced by the German Institute for Economic Research in Berlin, the Ifo Institute in Munich, the Kiel Institute for the World Economy, the Halle Institute for Economic Research, and RWI in Essen.

The daily count of coronavirus cases in Germany reached 6,541 on Tuesday, close to the peak in the spring, but fell back to 4,464 the next day, according to Johns Hopkins University. Regional governments are putting some restrictions on social gatherings and travel, although much less severe than the spring lockdowns.


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