Global economic production is likely to have increased strongly over the summer. Economic activity, however, is buoyant only in the advanced economies of the West. Waves of infections have recently weighed heavily on economic activity in large parts of Asia, where most of the people still lack full vaccination protection. In addi­tion, the rise in commodity prices has caused rates of consumer price inflation to soar. Nevertheless, the U.S. Federal Reserve and the European Central Bank (ECB) will not abandon their expansionary courses any time soon. Thus, economic policy is still propping up Western economies. In other regions of the world, including East Asia, conditions are less favourable. In addition, constrained production capacities are likely to limit supply in the manufacturing sector into the year 2021.

In Germany, many restrictions on services have been eased during summer thanks to the vaccination campaign, and private household consumption picked up markedly in the second quarter. But private consumption is still well below pre-crisis levels, and a rapid recovery is not in sight given persisting supply restrictions in the manufac­turing sector and rising infection rates. “However, it is likely that the recovery will gain momentum in 2022 again, partly because the situation on the labour markets is steadily improving,” says Oliver Holtemöller, head of the Department Macroeco­nomics and vice president at the IWH. Capacity utilisation is expected to return to normal by the end of 2022, especially as potential output is growing more slowly than before the crisis. Inflation will remain strong in the coming quarters, as CO2 prices are set to rise in 2022 and current shortages on the international markets are likely to ease only slowly. A sharp increase in the minimum wage will also put up­ward pressure on prices. Inflation is expected to reach 2.9% this year. With base effects waning, inflation will fall to 2.6% in 2022. The general government budget deficit is expected to be 4.5% of GDP this year and 1.3% in 2022.

One risk to the German economy arises from the dependence of German manufac­turers on international value chains. According to Holtemöller, current disruptions are thus hitting the German economy particularly hard, and it is difficult to estimate when they will be resolved. The relative success in containing the pandemic, if com­pared to other European countries, is also posing a risk, as it implies low numbers of people who have achieved immunity after a contraction of the disease. The por­tion of vaccinated people in the population is probably too low to prevent a Corona wave in fall.