Germany upgrades 2021 growth forecast amid vaccine hopes

Germany has raised its growth prediction for 2021 amid optimism that COVID vaccinations may offer a way out of the country's current lockdown.

Berlin on Tuesday upped its economic forecast for the year based on expectations of a busy industrial economy and demand for German goods abroad.

The expectation also hinges on the belief that the coronavirus lockdown will be eased in the second quarter as Germany's vaccination program gathers pace.

What are the latest predictions?

Economy Minister Peter Altmaier said the government now expected an increase in gross domestic product of 3.5%, compared with a previous forecast of 3%.

"Today's spring projection is an encouragement despite the current serious infectious situation," Altmaier said.

"This is the year when we will really be able to see the trend change," he said. "We will not only stop the economic slump but reverse it."

The minister added that it should be possible to lift most restrictions to contain COVID-19 over the course of the summer.

The recovery is predicted to extend into next year, with growth of 3.6% expected for 2022.

Vaccines brighten experts' outlook

The German government has generally been less optimistic than other forecasters, such as research institutes. In mid-April, several such institutes — including the prestigious Ifo institute — forecast a common growth prediction of 3.7%.

Their predictions were also based on the likelihood that mass inoculations could accelerate a return to normality. The vaccination program in Germany has lagged behind that of nations such as the UK and US. However, it is hoped that the rate of new infections will fall —allowing an easing of restrictions — as the immunization drive speeds up.

"Once the risk of infections is removed, the economy will show a strong recovery," the institutes said.

Ifo on Monday said that business morale had improved only slightly in April. While this was partly attributable to coronavirus, the institute said, it was also because of a semiconductor shortage that has dogged the motor vehicle industry.

Europe's largest economy shrank by almost 5% last year as entire sectors were put on hold amid the COVID-19 pandemic. Exports slumped by some 9.3% as a result of the impact of the pandemic on international trade.

Many of Germany's foreign markets have faster inoculation programs, which is expected to help fuel stronger growth