The German central bank on Friday lowered its outlook for economic growth in Germany next year and upped its inflation forecast, as supply chain bottlenecks and the pandemic put Europe’s biggest economy under pressure.

The Bundesbank cut its estimate for growth next year to 4.2 per cent on a seasonally adjusted basis from a previous forecast of 5.2 per cent, made in June last year.

“The recovery has been somewhat pushed back,” outgoing Bundesbank president Jens Weidmann said in a statement. The Frankfurt-based institution revised down its estimate for growth in 2021 to 2.5 per cent from 3.7 per cent. At the same time, it raised its prognosis for 2023 to 3.2 per cent from 1.7 per cent, and forecast 0.9 per cent growth in 2024. 

The German economy suffered a “pandemic-related setback” in the second half of 2021, but growth would “gather pace again in early 2022”, the Bundesbank said. 

Germany has imposed new health restrictions as it contends with a punishing fourth wave of the coronavirus, barring unvaccinated individuals from non-essential commerce and many public venues.

The Bundesbank also revised up inflation forecasts in view of soaring energy prices and disruptions to the supply chain.  Consumer prices would rise by 3.2 per cent on an annual basis this year, it estimated, followed by a rise of 3.6 per cent in 2022. Previously, it had been pencilling in inflation rates of 2.6 and 1.8 per cent respectively.

Consumer prices would rise by 3.2% on an annual basis this year, followed by a rise of 3.6% in 2022

Weidmann, who will step down at the end of the year, handing over his seat on the European Central Bank’s governing council, said that “monetary policy should not ignore these risks and remain alert”.

On Thursday, the ECB signalled a “step-by-step” reduction in its bond-buying stimulus programme, putting interest rate hikes that other central banks have decided on to fight inflation some way off.