The growth forecasts for Germany for this year were slightly revised downwards, from 3.6 per cent to 3.5 per cent; in contrast, the median forecasts for next year were raised somewhat, from 4.3 per cent to currently 4.4 per cent. The available figures for the second quarter show that real gross domestic product (GDP) declined by about 0.4 percentage points overall in the first half of the year.
Private consumption as a driver for growth
The relatively strong increase in the second quarter was therefore not entirely sufficient to compensate for the decline in the first quarter. However, economists are confident that the German economy will record stable growth, as the forecasts for this and the next quarter show. In the second quarter, private consumption and government spending were mainly responsible for economic growth. For this year, forecasts assume that in the second half of the year, fixed investments in particular and, to an increasing extent, foreign trade will be additional growth drivers. Next year, economic growth is expected to be driven primarily by private consumption and fixed investments.
Temporary increase in consumer prices
The latest inflation rate figures published by the Federal Statistical Office show that the strong rise in consumer prices continues. In August, the inflation rate of 3.9 per cent was even slightly above July’s value of 3.8 per cent. However, the experts still believe this to be only a temporary phenomenon. There is no other explanation for the fact that the median forecasts for this year are 2.6 per cent and for 2022 1.8 per cent. For the eurozone, too, the increase in the inflation rate from 2.2 per cent in July to 3.0 per cent in August has not yet had an impact on the inflation forecasts. At 2.0 per cent for 2021 and 1.5 per cent for next year, these remain virtually unchanged compared to the previous month.
ECB monetary policy heading back to normal
If these forecasts prove correct, the European Central Bank (ECB) would have no need to move towards a strict monetary policy, because the inflation target would just be reached this year and would be slightly undershot again next year. However, it should gradually shift from the still prevailing ultra-loose monetary policy towards normality. This would mean raising short-term interest rates to levels slightly above zero per cent. The experts, however, expect to see no changes in negative interest rates even for 2022, both for short and long maturities.