BERLIN: The German government's council of economic advisers said on Wednesday it expected Europe's largest economy to shrink by roughly 2% in the first quarter of this year due to lockdown measures to contain the Covid-19 pandemic.

The council cut its forecast for full-year 2021 gross domestic product growth to 3.1% from 3.7% previously. It expects the economy to reach its pre-crisis level at the turn of the year 2021/22 and to grow by 4% next year.

“The biggest downside risk remains the development of the coronavirus pandemic. The question how quickly the economy can get to normal mainly hinges on the vaccination progress,“ the council said in a statement, giving the first official forecast for the impact in the first three months of the year.

Inflation in Germany could rise above the 2% mark for the first time this year since 2012 on rising energy prices even though an economic recovery will be weaker than earlier expected, the government economic advisers said.

Prices could rise by up to 2.1% in 2021 and 1.9% in 2022, the so-called “Wise Men” panel of economists said.

The rise in 2021 would see Europe's biggest economy surpass the European Central Bank inflation target of just under 2%.

After having slowed considerably in 2020, inflation is expected to rise this year as the economy picks up following the relaxation of measures to slow the spread of the Covid-19 pandemic.

In Germany, prices sank by 0.5% in 2020 before being pulled up this year by rising energy prices since the introduction of a carbon tax in January.

Economy Minister Peter Altmaier said the economy was still divided, with manufacturers getting through the crisis relatively well and services suffering under coronavirus curbs.

“Rapid progress in vaccinations and the consistent use of rapid tests are two important factors in this phase of the pandemic so that we can allow the economy as a whole to recover,“ Altmaier said. – Reuters, AFP

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