German Bundesbank: 3Q Activity to Top 2Q, but 2021 Overall May Undershoot June Forecast

23 August 2021

By David Barwick – FRANKFURT (Econostream) – The German economy’s third quarter performance should exceed that of the second quarter, but lower-than-expected growth in the first half may lead to an undershooting of the June full-year 2021 forecast, the German Bundesbank said on Monday in its latest monthly report.

‘German economic output is expected to grow strongly in the summer and even more strongly than in the spring’, the German central bank wrote.

Although the pandemic continues to be a source of uncertainty and renewed containment measures can’t be ruled out, ‘they will probably be less extensive in view of the progress made in vaccination’ and ‘would probably only have a stronger impact on the economy in the autumn quarter’, the Bundesbank said.

 ‘Also against the background of lower-than-expected growth in the first half of the year, economic growth could, from today's perspective, be somewhat lower on average in the current year than expected in the June projection’, it said.

In June, the German central bank projected real, calendar-adjusted 2021 GDP growth of 3.7% (revised up from 3.0% last December), to be followed by 5.2% (previously 4.5%) in 2022 and 1.7% (1.8%) in 2023.

The Bundesbank reiterated its view that consumer price inflation later this year could read ‘between 4% and 5%’, but ‘should calm down noticeably again’ at the start of next year.

‘After the restrictions on economic activity have been largely withdrawn, the price effects of the openings should fade out and base effects due to the depressed prices at the nadir of the crisis will gradually disappear’, it said.

‘However, it is unclear to what extent the sharp increase in producer prices in recent months will still be passed on to consumers’, the German central bank added. ‘It will depend on the extent to which company margins come under additional pressure from broader cost and wage increases.’