Germany’s economy is set to grow 3.5 percent this year after a 5.4 percent contraction in the coronavirus-hit 2020, the International Monetary Fund said in a report released Tuesday.
The economic recovery in the biggest euro area economy would be choppy and unevenly distributed across sectors, and with quarterly swings conditioned by volatile infection dynamics through early 2021, the IMF said in the Article IV Consultation report.
“The recovery should firm up once there is wide distribution of effective vaccines, but output is not expected to return to its pre-crisis level until 2022,” the report said.
“The baseline projection is subject to unusually large uncertainty, with risks tilted to the downside as resurgent infection waves may trigger renewed or prolonged lockdowns and deepen economic scarring.”
Germany’s export dependence and financial openness also make it vulnerable to shocks to external demand, the lender said.
Longstanding challenges related to population aging, infrastructure gaps and an impending green energy transition will be compounded by structural changes ushered in by the pandemic, the IMF added.
The unemployment rate is forecast to rise to 4.3 percent from 4.2 percent.
The short-time work program, known as Kurzarbeit, should remain the main pillar of labor market support during the economic recovery, the report said.
That said, the IMF stressed the importance of additional measures targeted at groups hard-hit by the pandemic or not covered by Kurzarbeit, particularly women, youth, and elderly workers, to prevent widening inequality and deeper labor market scarring.
The budget deficit is projected to narrow to 3.4 percent of GDP this year from 6.3 percent last year.
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