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Ray of hope for economic recovery in Germany after pandemic tunnel

Does the German economy see the light at the end of the tunnel? Germany expects a stronger-than-expected recovery in 2021, after an expected setback in the first quarter due to restrictions due to the pandemic.

“There is reason to be optimistic,” Economy Minister Peter Altmaier told the Funke regional press group on Saturday, releasing his new growth forecasts for Europe’s largest economy on Tuesday.

In January it was still betting on 3% for this year, after a historic fall of 4.9% in GDP due to the 2020 health crisis.

But “the current figures show that it will be a little more,” warned the minister, satisfied with a “more solid evolution of the economy than expected.”

According to the German press, the government will raise its forecast to 3.5% this year and 3.6% in 2022.

The main economic institutes were already more optimistic than the authorities in mid-April, predicting growth of 3.7%.

– “Rebound” –

“As soon as the risk of infections is ruled out, the economy will experience a strong rebound,” they assured.

For the moment it is held back by the restrictions imposed against the new coronavirus.

Germany has closed its cafes, bars, restaurants and cultural and leisure venues in November, and most of the shops in December.

In April it stopped a timid reopening, due to an increase in the incidence rate in the country (the evolution of daily cases per 100,000 inhabitants).

As a consequence, the GDP should fall by 1.8% in the first quarter, according to the forecasts of the economic institutes. Official figures will be released on Friday.

But several factors are encouraging.

The vaccination campaign is progressively accelerating after a slow start. Almost a quarter of the population received the first dose and 7.2% are completely immune.

But it is above all the resilience of industry, the mainstay of the economy, that fuels optimism.

The sector, highly dependent on exports, benefits from the global recovery, especially in China and the United States.

“The industry is still running at full speed,” Carsten Brzeski, an analyst at ING bank, told AFP.

Industrial production experienced two months of decline in January and February, due to “exceptional effects” related to Brexit, but the March figures should be positive, estimates the expert.

And the sector will benefit from “US and European stimulus plans”, which will support its order book.

– “120,000 businesses” threatened –

The government expects a return to pre-pandemic levels “no later than 2022.”

But the crisis will leave traces: the country’s production potential will be reduced until 2024, according to economic institutes.

And the most affected sectors will find it difficult to get up. The HDE merchant federation recently estimated the number of businesses in “existential danger” at “120,000”.

The Ministry of Economy wants to extend its emergency aid until the end of the year and is examining the possibility of providing additional support for the most affected sectors.

Therefore Germany will be forced to let the debt rise, after years of budget austerity.

The country will borrow a record sum of 240.2 billion euros ($ 290 billion) in 2021 and will suspend in 2022, for the third year in a row, its sacrosanct debt-braking rule (which requires the federal state not to borrow more than 0.35% of its GDP every year).

This change is a matter of debate in a country long accustomed to budgetary rigor, with the legislative elections in September just a few months away.

Conservatives want to return to the rule as soon as possible, while Social Democrats and Greens prefer to modify it.

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