IWH Autumn Forecast 2020

Economy Recovers from the Shutdown – But a Quick Return to Pre-crisis Normality is Unlikely

Halle (Saale), September 16, 2020

 

The German economy has bounced back strongly over the summer, recovering a considerable part of the production slump caused by the shutdown in spring. Nevertheless, real gross domestic product in 2020 is likely to contract by 5.7%. In 2021, growth is expected to average 3.2% according to IWH autumn economic forecast. The decline in production in 2020 is likely to be less pronounced in East Germany compared to Germany as a whole.

The recession has also reached the labour market: The number of employees fell by 1.5% between February and July 2020. Propped up by expansive fiscal policy measures and automatic stabilisers, disposable incomes have remained stable and private consumption is expected to grow strongly in the second half of the year. However, the structural changes forced by the pandemic will likely weigh on the economy over the forecasting period. Production capacities are likely to remain underutilised until 2022.

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