Bundesbank projections: Upswing slightly delayed Inflation rate set to remain high at first, before gradually decreasing towards 2%

The German economy will experience a setback in the final quarter of 2021 and the first quarter of 2022 on account of the pandemic, but is set to pick up significant momentum again in spring of next year. “The upswing has been slightly delayed,” said Bundesbank President Jens Weidmann at the presentation of his institution’s current projections. According to these projections, gross domestic product will increase by 2.5% this year – less strongly than anticipated back in June – in light of the dip in growth. Over the next two years, calendar adjusted economic growth will then rebound to 4.2% and 3.2%, respectively.

While pandemic-related restrictions and supply bottlenecks for intermediate goods will stall growth in the final quarter of 2021 and the first quarter of 2022, according to the Bundesbank’s projections, private consumption is expected to rise substantially from spring onwards. It is assumed that pandemic-induced restrictions will largely have fallen away by then. Additional spending of household savings accumulated during the pandemic is likely, in part. “For a period of time, consumers will spend more of their disposable income than they did before the pandemic,” Mr Weidmann explained. Moreover, it is assumed that the supply bottlenecks will be resolved by the end of 2022. The Bundesbank’s experts thus presume that exports, in particular, will temporarily experience a strong boost. “As a result of the strong upswing, aggregate capacity will be utilised to an above-average degree again from as early as the second half of next year,” the Bundesbank President elucidated.

Significant upward revision of inflation forecast

The Bundesbank’s projections for the inflation rate are consistently markedly higher than expected back in June. An inflation rate of 3.2% as measured by the Harmonised Index of Consumer Prices is expected for this year. This increase is attributable not only to one-off effects that have been on the radar for some time, but also to the expiry of the reduction in VAT rates and the introduction of carbon emission certificates. The general price level also climbed steeply due to the surprisingly sharp rise in energy commodity prices on the international markets. Furthermore, cost increases due to delivery and transport bottlenecks have been passed through to consumers, and, in addition, profit margins have been widened in the face of strong demand. On average over the coming year, the inflation rate is likely to rise further to 3.6% on the back of these influences, although one-off effects, primarily those linked to VAT, will then elapse.

The inflation rate will only fall significantly if these influences diminish in 2023, according to the Bundesbank’s experts. At 2.2% in 2023 and 2024, too, however, it will still remain relatively high – not only on account of strongly rising wages and the favourable economic situation, but also due to the costs associated with the transition to a climate-neutral economy. “The risks for the inflation rate are skewed to the upside, both in Germany and in the euro area as a whole,” the Bundesbank President said. “Monetary policymakers should not ignore these risks. We need to be vigilant.

Government finances: crisis burdens rapidly dissipating

The projection was not yet able to take the fiscal intentions of the new German Federal Government into account. In the baseline scenario of unchanged fiscal policy, both the government deficit and the debt ratio decline rapidly. This is attributable to the strong economic recovery and the expiration of crisis assistance measures. From 2023 onwards, the government budget could therefore be more or less balanced, and the debt ratio could be around 60% once more. In view of the new fiscal intentions, however, fiscal policy is likely to be more expansionary than previously estimated.

Projection December 2021

Year‑on‑year percentage change






Real GDP, calendar adjusted






Real GDP, unadjusted






Harmonised Index of Consumer Prices






Harmonised Index of Consumer Prices excluding energy and food






Source: Federal Statistical Office. Annual figures for 2021 to 2024 are Bundesbank projections.