Ifo updated their German economic forecasts and now expects GDP to shrink by -6.6% this year. A strong rebound of 10.2% GDP growth is expected in 2021. “This is based on our evaluation of the ifo survey conducted among companies in May. On average, participants consider it most likely that their own business situation will return to normal in nine months,” says Timo Wollmershaeuser, Head of Forecasts at ifo.
The forecast depends heavily on how quickly companies’ business situation returns to normal. In the best case, companies indicate that this might take an average of only five months. GDP could shrink only -3.9% this year and grow 7.4% next.
In the worst case, with an average normalization period of 16 months, economic output would shrink by -9.3% this year and grow by 9.5% next year. The recovery would then be drawn out well into 2022.
Also, the new forecast was prepared based on the assumption not that the coronavirus is defeated in the coming months, but that its spread can be contained and a second wave of infection avoided.
