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 5.4% drop in 2020.
Global trade and exports. The recovery in global trade and exports is taking a breather during the winter half. Exports are expected to rise about 10% in 2021.
A double dip for private consumption during winter 2020/21. In Q4, the recovery of private consumption is likely to pause due to the 'lockdown lite'. A rebound should begin in the summer half of 2021, yielding an annual growth rate of 4.7%.
German labour market – resilient thanks to massive fiscal support. Employment is not expected to reach pre-crisis levels before mid-2022. The unemployment rate should rise to 6.3% on average in 2021 (2020: 5.9%).
Equipment investment. Damaged corporate balance sheets will remain a burden for investment. Although equipment spending is projected to pick up significantly, pre-corona levels will likely only be reached in 2022.
Housing market: The boom is not over. The impact of the COVID-19 crisis on the residential sector should remain fairly limited due to the severe housing shortage. The construction sector is very solid and should grow in 2020 and 2021.
Public finance caught in a downward spiral due to coronavirus. We estimate that the general government deficit should remain above 4% of GDP in 2021. The debt ratio should reach its provisional high point late 2021, at approximately 71.7%.
Inflation: Return to normal in 2021. We expect the inflation rate to rise to 1.4% in 2021 and 1.6% in 2022. n German industry: Losses only partly offset in 2021. We expect domestic manufacturing production to increase by roughly 8%.
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.
