The International Monetary Fund, in the Article IV Consultation report released Tuesday said that the economic recovery in the biggest euro area economy would be choppy and unevenly distributed across sectors, and with quarterly swings conditioned by volatile infection dynamics through early 2021. Germany's economy is set to grow 3.5 percent this year after a 5.4 percent contraction in the coronavirus-hit 2020, IMF stated. The recovery should firm up once there is wide distribution of effective vaccines, but output is not expected to return to its pre-crisis level until 2022, the report said.
Germany's export dependence and financial openness also make it vulnerable to shocks to external demand, the lender said. Longstanding challenges related to population aging, infrastructure gaps and an impending green energy transition will be compounded by structural changes ushered in by the pandemic, the IMF added. The unemployment rate is forecast to rise to 4.3 percent from 4.2 percent. The budget deficit is projected to narrow to 3.4 percent of GDP this year from 6.3 percent last year.
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