Berlin (AFP)

Does the German economy see the light at the end of the tunnel?

Berlin forecasts a more vigorous-than-expected recovery in 2021, after an expected decline in the first quarter due to restrictions linked to Covid-19.

"There are reasons to be optimistic," Economy Minister Peter Altmaier told regional press group Funke on Saturday, who is due to unveil his new growth forecasts for Europe's largest economy on Tuesday.

In January, it was still counting on 3% this year, after a historic drop of 4.9% of GDP due to the health crisis in 2020.

But "current figures show that it will be a little more", warned the minister, welcoming a "more solid economic development than expected".

According to the German press, the government should raise its forecast to 3.5% this year and then to 3.6% in 2022.

The country's main economic institutes have already shown more optimism than the authorities in mid-April, expecting growth of 3.7%.

"As soon as the risk of infections has been ruled out, the economy will experience a strong rebound," they said.

- "Bounce" -

The euro zone's largest economy is currently hampered by restrictions linked to the coronavirus.

Germany has closed its cafes, bars, restaurants, places of culture and leisure since November, and a large part of its stores since December.

A tentative reopening was halted in April, due to an increase in the incidence rate in the country.

Consequence: the economy should experience a drop of 1.8% of GDP in the first quarter, according to forecasts from economic institutes.

Official figures will be released on Friday.

But several factors give hope for a rapid improvement.

The vaccination campaign is gradually accelerating after a slow start.

Almost a quarter of the population was able to benefit from a first injection and 7.2% are totally immune.

But it is above all the resistance of industry, the pillar of the economy, that feeds optimism.

The sector, which is very dependent on exports, is benefiting from the global recovery, particularly in China and the United States.

"The industry continues to run at full speed," Carsten Brzeski, analyst for the bank ING, told AFP.

Industrial production experienced two months of decline in January and February, due to "exceptional effects" linked in particular to Brexit, but the figures for March should be positive, believes the expert.

And the sector should benefit greatly, thereafter, from "American and European stimulus plans", which will support its order books.

- "120,000 stores" threatened -

The government plans to return to pre-pandemic levels "no later than 2022".

But the crisis will leave traces: the country's production potential will be reduced until 2024, according to the economic institutes.

And the most affected sectors should struggle to recover.

The federation of traders HDE recently estimated at "120,000" the number of stores in "existential danger".

The Ministry of the Economy therefore wants to extend its emergency aid until the end of the year and is considering additional support for the most affected sectors.

Berlin will therefore have to continue to let slip its debt, after years of budgetary austerity.

The country will borrow the record sum of 240.2 billion euros in 2021, and suspend in 2022, for the third consecutive year, its sacrosanct debt brake rule.

This provision, enshrined in the constitution, requires the federal state not to borrow more than 0.35% of its GDP each year.

This upheaval is the subject of debate in a country long accustomed to budgetary rigor and while the legislative elections are looming in September.

The Conservatives want to revert to this rule as soon as possible, while the Social Democrats and Greens want to change it.

© 2021 AFP