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German GDP: Down (Q1) but not out (in 2021) – Inflation reaching 2%

February 17, 2021
Region:
German GDP: Down (Q1) but not out (in 2021). The longer “hard” lockdown, weather-related losses in construction and impairments in car output due to chip supply problems have prompted us to cut our Q1 GDP forecast to -2% qoq. We continue to expect a strong rebound in the summer half propelled by healthy global demand, supportive fiscal and monetary policy and German households’ pent-up demand. Inflation: Now expecting 2% for 2021! The Jan print of 1% yoy surprised massively to the upside, in part due to one-offs. But the strong rise in core goods prices begs the question whether the Jan readings could herald stronger underlying inflation dynamics. There are still strong arguments for a continuation of structurally low inflation dynamics. However, we see risk that price dynamics could strengthen more strongly through impaired supply conditions. Overall, we now project the inflation rate to average 2.0% in 2021. Towards the end of 2021 the headline rate could spike to as much as 3% before easing to 1 ½% in Q1 2022. [more]

More documents about "Economic and european policy"

286 Documents
March 31, 2021
Region:
1
Merkel’s Conservatives currently face major problems. Approval rates are in free fall as trust in the government’s crisis management has eroded. The CDU/CSU is polling at pre-crisis levels of below 30% fuelling speculation that not only Merkel but the Conservatives in total might not be part of the next government. The announcement of their chancellor candidate is unlikely to turn the tide for the Conservatives. A bold election manifesto on how to bring Germany forward after the deficiencies revealed by the crisis combined with convincing core personal are needed. Coalition options are back in focus with the Greens being the kingmakers in all scenarios. The political talk of the day is a Green-led traffic light coalition also at the federal level. Still, a conservative-green government remains our baseline scenario, but it is not a foregone conclusion anymore. [more]
March 15, 2021
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2
In yesterday’s regional elections in Baden-Wuerttemberg (BW) and Rhineland-Palatinate (RP), the CDU achieved disappointing results and thus faces a dismal start into this election year. The CDU was up against two extremely popular prime ministers who appeal to voters across the political camps. However, nondescript CDU candidates, allegations around mask procurement deals and growing discontent about pandemic management are behind the heavy defeats. The new CDU party leader Armin Laschet was not able to change the party’s fortunes. Nevertheless, Laschet’s chances for Merkel’s succession remain intact, in our view. While another six months until federal elections is a long time in politics, the state elections serve as a reminder that a conservative-green coalition which is the consensus so far, is not a foregone conclusion. With Merkel’s bonus for the CDU/CSU fading, vaccine problems continuing and the surprising revival of the Liberals, other coalition options for the Greens might open up. [more]
March 10, 2021
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3
On March 14, regional elections in Baden-Württemberg (BW) and Rhineland-Palatinate (RP) will provide the first electoral test for the parties in the run-up to the federal elections. Polls see the ruling Greens in BW, respectively the SPD in RP in the lead, but uncertainty about the polls is higher this time given the fallout from the pandemic. Additional headwinds for the CDU result from a current political outrage over questionable procurement deals of two CDU/CSU Bundestag MPs. The new CDU party leader Laschet is not up for election but the performance of the CDU will of course be (partly) attributed to him. However, as long as the CDU is not experiencing a severe setback compared to its 2016 results, Laschet’s chances of being nominated as the CDU/CSU chancellor candidate remains intact in our view. [more]
March 9, 2021
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4
At the onset of this decisive election year, Germany finds itself confronted with an increasingly multipolar world, a weakened liberal, rule-based world order and rapid technological change. By applying the concept of a SWOT analysis, we aim at kicking off a debate about possible trajectories for the German economy in the post-Merkel era. As key threats to Germany’s "business model" (export-driven with a strong innovative industrial base), we identify (i) a continued erosion of the liberal rule-based trading and investment order and (ii) the falling behind in the global tech race with respect to Green-tech, AI and IoT. By plotting these two threats on separate axes, we then develop four scenarios and identify key drivers that will define Germany‘s position on these axes. For the new government complacency or reactive policies are no options – "High-Tech Made in Germany" might turn out to be an upside scenario. Strong reform effort of both the government and corporate sector is needed in order to secure Germany’s place in the "best-of-all-worlds" scenario. This requires a proper allocation of R&D investments, reaping the benefits of industrial data and an accelerated diffusion of cross-sectoral technologies like AI. [more]
January 18, 2021
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5
Winning 53% of delegates’ votes, Armin Laschet - the PM of NRW and Merkel loyalist - secured a slim majority in the run-off for the CDU party leadership on Saturday. This does not come as a surprise, as Laschet was widely seen as the candidate with a small lead in a tight race. In the end, having most governing experience and a track record of winning elections probably tipped the scale in favour of Laschet (e.g. the former SPD stronghold NWR in 2017). Being well-connected within the CDU also paid off for him. However, with a mere difference of 55 votes this is no landslide victory, though still a clearer win for the Merkel camp than AKK’s 17-vote win over Merz in 2018. The slim majority is a reflection of the existing divisions within the party, leaving Laschet with the task of bridging those as soon as possible in this decisive super-election year. Norbert Röttgen (coming third in the election) quickly signalled support for Armin Laschet and was elected to the CDU’s steering committee. [more]
December 10, 2020
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6
The COVID cycle and vaccination progress will drive the economy in 2021. We expect that infection rates will not come down decisively before Q2. By summer vaccination numbers should reach critical mass. A strong recovery starting in Q2 should yield an annual GDP increase of 4.5% after a 5.5% drop in 2020.
All attention on the super election year 2021: Germany is facing federal elections and multiple state elections. Our baseline scenario is a conservative-green government, but coalition talks will significantly test the willingness to compromise on both sides.
(Also in this issue: global trade and exports, private consumption, labour market, equipment and other investment, the German housing market, public finances, inflation, German industry's corona losses) [more]
November 2, 2020
Region:
7
Q3 GDP surprise: A rear mirror view – but obstacles right in front. With the partial lockdown during November, the economy will almost certainly see another negative quarter, even in an optimistic scenario where restrictions succeed in squashing new infections and will be completely abolished by the end of November. Prepare the German healthcare sector for regional bottlenecks – protect risk groups better: The number of patients in intensive care and hospital capacity is just as important as the number of new infections. We estimate that 400,000 acutely infected patients are the limit for intensive care units. (Also in this issue: inflation outlook, German labour market, corporate insolvencies, German auto industry, global construction industry, German corona policy, open borders in the EU) [more]
September 24, 2020
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9
We have lifted our GDP forecast for 2020 to -5.5% and see the economy expanding by 4.5% in 2021. An important factor is that the rebound during Q2 – when GDP contracted by 9.7% – turned out more dynamic than expected. The momentum carried over into July. Even with some likely short-term moderation in August, we now expect Q3 GDP to increase by 6.0% qoq. Together with a 2.5% expansion in Q4, this should result in an annual GDP drop of “only” 5.5%, compared to the 9% expected in early May at the height of the pandemic in Europe. The higher carry-over lifts our 2021 GDP growth forecast to 4.5%, despite somewhat weaker momentum in H1 than expected earlier. (Also in this issue: labour market, bilateral exports, fiscal outlook 2020-22, German industry, the race for CDU leadership, and federal election prospects.) [more]
September 23, 2020
Region:
10
The two August mass demonstrations against the corona measures in Berlin attracted wide media attention and rattled the public. Many felt confirmed in their feeling that the corona crisis is driving society further apart. Current surveys, however, show that 80% of Germans firmly support the government and trust in government is at a record high. Rather, the protests go beyond the corona crisis, which might be a door opener for general system criticism. The causes for criticism and uncertainty are more likely ongoing long-term trends such as the loss of western supremacy, demographic change, climate change or digitalisation. [more]
August 31, 2020
Region:
11
In its industrial policy strategy, the European Commission has merged the goal of reinforcing Europe’s industrial sovereignty and global competitiveness with its overarching objective: the twin transition to a green and digital economy. Close cooperation between the industry, governments and academia is necessary to meet these ambitions and open questions regarding the realisation and compatibility of the policy objectives need to be addressed along the way. During the pandemic, the role of the state in the EU economies has strengthened substantially. Hot political debates about normalising the market mechanism and reinstating state aid rules can be expected over the next years. Risks are that even post-COVID, there might be calls for continued exemptions to the European state aid and competition rules. This could lead to lasting distortions of the single market. [more]
August 10, 2020
Region:
12
Monthly data point to a strong pickup in economic momentum during the course of Q2, in part due to catch-up effects. Still, after the unprecedented 10.1% GDP contraction in Q2 we expect a 5% increase in Q3 followed by a 2% rise in Q4 (consensus: 5.2% and 2.4%). We now expect German GDP to contract by 6.4% (compared with -9% predicted in early May) followed by a 4% increase in 2021. Still, the pre-COVID output level will not be reached before mid-2022. The current exceptional volatility in monthly data and the further development of the global pandemic imply that the error margins remain exceptionally high. (Also in this issue: Merkel’s strength might become a burden for her potential successors.) [more]
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