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The return of inflation: Now expecting 2% for 2021

February 25, 2021
Region:
The Jan print of 1% yoy surprised massively to the upside, in part due to one-offs. But the strong rise in core goods prices begs the question whether the Jan readings could herald stronger underlying inflation dynamics. There are still strong arguments for a continuation of structurally low inflation dynamics. However, we see risk that price dynamics could strengthen more strongly through impaired supply conditions. Overall, we now project the inflation rate to average 2.0% in 2021. Towards the end of 2021 the headline rate could spike to as much as 3% before easing to 1 ½% in Q1 2022. [more]

More documents from Sebastian Becker

40 Documents
July 27, 2021
Region:
1
The recent flood caused by heavy rain was among the most severe natural disasters hitting Germany since reunification. More than 170 people lost their lives and many private homes and public buildings, roads and municipal infrastructure were destroyed. Since the flooding occurred in regions with low industrial density, the expected negative impact on overall economic activity, in particular on industrial production, should be relatively limited. Still, the regional impact on agricultural production (such as wine-growing) might be significant. Some of the most recent polls already fully capture post-flood views. As expected, there is no big shift in voter preferences. The events will likely confirm voters' previous choices. [more]
June 21, 2021
Region:
2
Since the start of the COVID-19 pandemic the US has launched fiscal packages worth USD 5.3 trillion (25.5% of GDP). With new fiscal plans in the pipeline the total stimulus could even exceed USD 9 trillion (or 40% of 2020 GDP). Although the success of this bold US experiment is far from certain, it has started a new trend in fiscal policies. As low interest rates have depressed governments’ interest bills – despite surging debt – many observers advocate to make greater use of deficit spending for funding a public investment campaign over the next decade. Given weak growth prospects, restoring debt sustainability seems a Herculean task for high debt countries. But even some “fiscally prudent” countries like Germany face severe fiscal challenges due to rapid population ageing. [more]
June 10, 2021
Region:
3
Q2 GDP should be o.k., despite April’s little stumble. Strong external demand and depleted finished goods inventories suggest a strong bounce back once current supply constraints ease. Consumers’ economic outlook and income expectations are improving. Together with an expected normalization of the savings rate that should provide a strong underpinning for consumption growth. We stick to our Q2 GDP forecast of close to 2% qoq and 4% for the whole year. The rate of inflation has been rising sharply since the start of 2021. With price dynamics continuing to outstrip expectations and given the prospect of stronger economic recovery in the summer, we now expect the annual average CPI inflation rate to rise to 2.8% in 2021, monthly numbers could even touch 4%. [more]
March 23, 2021
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4
The federal government will present a supplementary budget for 2021, which would be the third supplementary budget over the past year. The volume could reach as much as EUR 60 bn (1.7% of GDP). As a result, 2021 net federal borrowing could possibly rise to as much as EUR 240 bn (6.8% of GDP), an all-time high in German history. We still stick with our 5.9% headline deficit forecast for the general government level as we doubt that all the money will be spent. This implies a structural deficit of nearly 5% of GDP this year (2020: -1.8% of GDP). [more]
February 17, 2021
Region:
5
German GDP: Down (Q1) but not out (in 2021). The longer “hard” lockdown, weather-related losses in construction and impairments in car output due to chip supply problems have prompted us to cut our Q1 GDP forecast to -2% qoq. We continue to expect a strong rebound in the summer half propelled by healthy global demand, supportive fiscal and monetary policy and German households’ pent-up demand. Inflation: Now expecting 2% for 2021! The Jan print of 1% yoy surprised massively to the upside, in part due to one-offs. But the strong rise in core goods prices begs the question whether the Jan readings could herald stronger underlying inflation dynamics. There are still strong arguments for a continuation of structurally low inflation dynamics. However, we see risk that price dynamics could strengthen more strongly through impaired supply conditions. Overall, we now project the inflation rate to average 2.0% in 2021. Towards the end of 2021 the headline rate could spike to as much as 3% before easing to 1 ½% in Q1 2022. [more]
December 10, 2020
Region:
6
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 5.5% drop in 2020.
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.
(Also in this issue: global trade and exports, private consumption, labour market, equipment and other investment, the German housing market, public finances, inflation, German industry's corona losses) [more]
December 7, 2020
Region:
7
There’s no denying that the federal budget is increasingly in trouble. It may have been the right decision, and an important one at that, to loosen the shackles on the financial assistance and add supplementary aid schemes, but it must be ensured that things don’t get out of hand. If it keeps a lid on the likely pressure to consolidate, the government will need to pull out all the stops to preserve its fiscal resources by making more efficient use of them as the crisis progresses. The new federal government will face major challenges and weighty decisions in fiscal and economic policy. After all, it will ultimately have to manage putting the public finances back on solid ground without overly squeezing the economy with even more burdensome taxes and contributions. There is probably no way around a major reckoning next autumn after the Bundestag parliamentary elections. [more]
November 27, 2020
Region:
8
Early this year, the government had to put together massive bailout and aid packages in next to no time in order to avert an imminent economic collapse. However, cash outflow from immediate assistance and interim aid schemes have so far fallen considerably short of the expectations. As a result, the funds budgeted for this purpose have not been nearly utilised to their full extent. In light of November’s partial lockdown, the government has now decided to increase the dose of its financial aid to solo self-employed, freelancers as well as small and medium-sized companies. Consequently, the mere ripple of support often bemoaned in this area could ultimately gather enough strength yet to become a mighty wave. The provision of aid over the further course of the crisis is to be strictly guided by necessity, effectiveness and appropriateness as fiscal resources are limited and the state cannot provide unlimited comprehensive cover. [more]
November 2, 2020
Region:
9
Q3 GDP surprise: A rear mirror view – but obstacles right in front. With the partial lockdown during November, the economy will almost certainly see another negative quarter, even in an optimistic scenario where restrictions succeed in squashing new infections and will be completely abolished by the end of November. Prepare the German healthcare sector for regional bottlenecks – protect risk groups better: The number of patients in intensive care and hospital capacity is just as important as the number of new infections. We estimate that 400,000 acutely infected patients are the limit for intensive care units. (Also in this issue: inflation outlook, German labour market, corporate insolvencies, German auto industry, global construction industry, German corona policy, open borders in the EU) [more]
October 2, 2020
Region:
10
The sizeable fiscal gaps in 2020/21 caused by the corona pandemic – which, just at the federal government level, are reflected in record new borrowing of around EUR 218 bn and EUR 96 bn, respectively – are a harsh setback for ensuring long-term public debt sustainability. In this week’s debate on the federal budget Finance Minister Scholz assured that no fiscal action in response to the crisis would be more expensive than fiscal action. But for the next federal government this appraisal might also hold true – but then with respect to fiscal consolidation. [more]
September 24, 2020
Region:
11
We have lifted our GDP forecast for 2020 to -5.5% and see the economy expanding by 4.5% in 2021. An important factor is that the rebound during Q2 – when GDP contracted by 9.7% – turned out more dynamic than expected. The momentum carried over into July. Even with some likely short-term moderation in August, we now expect Q3 GDP to increase by 6.0% qoq. Together with a 2.5% expansion in Q4, this should result in an annual GDP drop of “only” 5.5%, compared to the 9% expected in early May at the height of the pandemic in Europe. The higher carry-over lifts our 2021 GDP growth forecast to 4.5%, despite somewhat weaker momentum in H1 than expected earlier. (Also in this issue: labour market, bilateral exports, fiscal outlook 2020-22, German industry, the race for CDU leadership, and federal election prospects.) [more]
June 26, 2020
Region:
12
How deep is your trough? Daily activity trackers suggest that the economy turned at the end of April as lockdown measures were gradually lifted. But we still expect a double-digit decline in Q2 GDP. The EUR 130 bn fiscal package was somewhat above our earlier expectations but does not change our GDP forecast, especially as still-prevailing pandemic uncertainties might curtail the economic impact of the package. But upside risks to our -9% GDP forecast for 2020 have (somewhat) increased. (Also in this issue: corona pandemic update, German public finances, global trade, German tourism during the corona crisis, German politics goes European) [more]
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