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Third wave slows down the economy

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The leading economic institutes have significantly lowered their growth forecast for 2021. The renewed corona shutdown is delaying the economic recovery, according to the experts. Because of the crisis, they recommend a higher retirement age.

The third corona wave is massively inhibiting the growth of the German economy this year. The leading German economic institutes, the RWI in Essen, the Berlin DIW, the Ifo Institute in Munich, the Kiel IfW and the IWH in Halle have reduced their forecast from 4.7 percent in autumn 2020 to 3.7 percent.

Risk from new mutations

“The new wave of infections and the associated containment measures lead to a downward revision of the forecast for the year 2021 by one percentage point compared to the autumn report 2020,” says the joint report. The first quarter of the current year in particular is weighing on the economy. “Due to the ongoing shutdown, economic output is likely to have fallen by 1.8 percent in the first quarter,” said Torsten Schmidt, Economic Director of RWI. “The development of the pandemic continues to be the most significant downside risk for the forecast,” warn the institutes. There could still be bottlenecks and delays in the delivery of vaccines and tests. New virus mutations could also stop the economy from opening up, which would slow the recovery again.

Better prospects from summer

The forecast is based on the assumption that the current shutdown will continue for the time being and that the last easing will largely be reversed. The institutes do not expect further easing steps until the middle of the second quarter, and the restrictions will then be lifted by the end of the third quarter. “In the course of the easing, we expect a strong expansion in economic activity in the summer half of the year, especially in the service sectors particularly affected by the pandemic,” said Schmidt. The experts emphasize that a strong recovery will set in as soon as the risk of infection has been averted, especially through vaccination. They forecast that the economy should return to normal capacity around the beginning of next year. In the course of the easing from May, the number of unemployed will also decline.

Increase retirement age?

In view of the rising national debt, the institutes are in favor of increasing the retirement age. It would be a challenge to get the state finances back on a solid footing after the pandemic, it said. As the population is getting older, pension insurance plays a major role. A higher retirement age could support the state finances. So far, the federal government has assumed economic growth of three percent. Recently, three industry associations had expressed their cautious optimism about the current economic development in their sectors . The service sector in particular is suffering from the lockdown measures.

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