German Bundesbank: Strong 3Q Unlikely to Leave Germany at Pre-Pandemic Output Level

27 September 2021

By David Barwick – FRANKFURT (Econostream) – Although third-quarter growth should top that of the second quarter, it would probably still not return the German economy as a whole to pre-pandemic levels, the German Bundesbank said on Monday in its latest monthly report.

‘Overall, economic output is likely to rise more strongly in the third quarter than in the spring’, when growth registered 1.6% on the quarter’, the German central bank wrote. ‘However, it is unlikely to reach the pre-crisis level from the fourth quarter of 2019 … by the summer due to the supply-side difficulties in industry.’

German economic output was approximately 3.5% below its pre-pandemic level at the end of 2Q, the Bundesbank noted.

Difficulties acquiring intermediate products ‘continued to significantly impair the industrial recovery’, according to the report, which cited Ifo research institute surveys showing approximately two thirds of manufacturing companies to have reported associated problems during the summer months.

As before, the Bundesbank painted a bright picture of the labour market, where once again unemployment was ‘expected to continue to fall sharply in the next three months.’

Turning to inflation, the German central bank observed that the growing impact of the temporary VAT cut implemented in the second half of last year was offset somewhat by ‘the quite strong adjustment of some HICP weights for the year 2021 to the consumption habits of the previous year due to Corona.’

‘In the current and the coming month, the dampening special effect will weaken considerably’, the Bundesbank said. In November it will turn somewhat positive and finally disappear completely in December. From today's perspective, rates between 4% and 5% are temporarily possible from September to the end of the year. At the beginning of 2022, inflation should ease noticeably, but still remain above 2% until the middle of the year.’