Germany: Election year unlikely to calm tempers – Deutsche Bank

The COVID-19 cycle and vaccination progress will drive the economy in 2021. Economists at Deutsche Bank expect that infection rates will not come down decisively before Q2. A strong recovery starting in Q2 should yield an annual GDP increase of 4.5% after a 5.5% drop in 2020. Furthermore, all attention on the super election year 2021. Germany is facing federal elections and multiple state elections. The baseline scenario is a conservative-green government but coalition talks will significantly test the willingness to compromise on both sides.

See – Bundesbank: German economy to shrink by 5.5% in 2020 vs. -7.1% seen in June

Key quotes

“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.”

“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%).”

“We estimate that the general government deficit should remain above 4% of GDP in 2021. The debt ratio should reach its provisional high point in late 2021, at approximately 71.7%.”

“We expect the inflation rate to rise to 1.4% in 2021 and 1.6% in 2022.”

“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.”