German economic growth will be weaker than expected in 2021, leading research institutes said Thursday, as ongoing coronavirus restrictions continue to slow the recovery of Europe's largest economy.
Germany's gross domestic product will expand by only 3.7% this year, five economic think-tanks including Ifo Institute for Economic Research (Ifo), The German Institute for Economic Research (DIW) and Leibniz Institute for Economic Research (RWI) said in their annual spring report, revising down more optimistic predictions made in the autumn by 1%.
"As a result of the ongoing shutdown, economic performance is expected to drop by 1.8% in the first quarter," said Torsten Schmidt, forecasting chief for RWI.
Yet, the researchers predicted that the economy would bounce back and unemployment figures would decrease as lockdowns are eased and more people are vaccinated in the middle of the second quarter.
"We expect a significant expansion of economic activity in the summer, especially in the hard-hit service sectors," said Schmidt.
The spring forecast also predicted growth of 3.9% in 2022 and said the state deficit as a percentage of the gross domestic product would also shrink next year.
While the cost of tests and vaccinations would see the deficit remain at 4.5% of GDP in 2021, that figure would shrink to 1.6% the following year, the report said.
German GDP contracted by 4.9% in 2020, and hopes of a quick recovery this year have been thwarted by ongoing restrictions in the face of a third wave of infections.
Exports and industrial activity have adjusted better to virus restrictions, but services and retail enterprises that depend on face-to-face contact have lost much of their business.
Meanwhile, vaccinations against the virus have lagged behind compared to the United States and the United Kingdom, although the pace in Germany picked up somewhat over the last week.
Bars and restaurants have been closed since November and non-essential shops since December in the country.
With case numbers rising, Chancellor Angela Merkel's government is trying to tighten, rather than ease restrictions.
On Tuesday, Merkel's cabinet agreed on a new law that would allow Berlin to impose night-time curfews and close shops and schools in areas with high infection rates.