German economy likely to shrink 6.6% this year, Ifo says

FILE PHOTO: Customers wait in line after the coronavirus disease (COVID-19) lockdown has been eased around the country and companies open some of its stores, in Munich, Germany, May 12, 2020. REUTERS/Andreas Gebert/File Photo

BERLIN (Reuters) – The German economy is likely to shrink by 6.6% this year as a consequence of the coronavirus pandemic before growing by 10.2% in 2021, the Ifo Institute said on Thursday in its latest update.

On average, businesses expected operations to return to normal in nine months after lockdowns in the second quarter, Ifo said. In that case, the economy would shrink 12.4% in the second quarter of this year.

Recent surveys suggest Europe’s largest economy is slowly recovering after economic life was frozen in late March to contain the coronavirus pandemic, but the latest data underline the unprecedented impact.

In Ifo’s worst case, in which a return to normal took 16 months, the economy would shrink 9.3% this year and grow 9.5% in 2021. In the best case, companies would recover in five months, the economy would shrink just 3.9% and expand 7.4% next year.

All three scenarios, based on business sentiment as well as production, turnover and foreign trade data, assumed a gradual relaxation of restrictions from the end of April.

Some businesses were braced for a longer, more painful recovery, however: aviation expected normalisation to take 16 months. Travel, hospitality and carmaking also expected lengthier recoveries.

Construction, until recently relatively resilient in the face of the downturn, will also suffer this year, its industry association said – turnover will stagnate at 135 billion euros, the same level as last year, it said – a decline in real terms of 3%.

Reporting by Thomas Escritt, editing by Douglas Busvine, Larry King

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