German recovery loses steam

A jump in new coronavirus cases could see GDP fall by as much as 5.4pc this year according to leading German research institutes

Germany’s economy is losing steam but will do slightly better than government forecasts as fears grow over rising coronavirus infections, according to the country’s five leading research institutes.

GDP will shrink by 5.4pc this year before expanding by 4.7pc in 2021, the experts predicted in their latest bi-annual outlook published on Wednesday. Their previous report in the spring forecast a 4.2pc contraction this year and growth of 5.8pc next year.

“A good part of the slump from the spring has already been made up, but the remaining catching-up process represents the more arduous journey back to normal,” said Stefan Kooths, economic director of IfW Kiel.

Last month the administration of Chancellor Angela Merkel revised its economic forecast for this year from minus 6.3pc to minus 5.8pc, and for next year cut its growth forecast from 5.2pc to 4.4pc.

New cases in Germany jumped to 6,541 on Tuesday, close to the levels seen during the peak in the spring, although they fell back again to 4,464 in the 24 hours to Wednesday morning, according to data from Johns Hopkins University.

“Now we mustn’t get careless, otherwise the rapid upswing will be lost very quickly,” said finance minister Olaf Scholz.

Investor confidence in the outlook for Germany’s economy has plunged, in a sign of concern that resurgent infections could delay a recovery.

A gauge by the ZEW dropped to 56.1 in October - the lowest in five months - from 77.4 in September, below even the most pessimistic estimate in a Bloomberg survey.

Industrial output had unexpectedly dropped in August. The development of the pandemic, and uncertainty over corporate insolvencies in Germany and abroad, are the main risks to the forecast its authors said.

On the upside, private savings have increased sharply and “if released more quickly than assumed in the forecast, could translate into a quicker- than-anticipated recovery,” according to the report.

The five institutes that drew up the forecasts are the DIW (Berlin), IWH (Halle), Ifo (Munich), IfW (Kiel) and RWI (Essen). The Zurich-based KOF institute and the IHS institute in Vienna also assisted.