Germany: Cyclical improvements and structural challenges

We expect the German economy to record a small contraction by the end of th is year on the back of the current containment measure s . Our baseline scenario foresees that th e se measures will be softened by the beginning of next year, setting the economy back on its recovery path. Beyond the mechanical rebound triggered by an easing of containment measures, growth will be supported by r obust external demand and an exceptional ly expansionary fiscal policy. Infection dynamics will remain the main risk factor in the coming two quarters . After that, we assume that vaccines will have been sufficiently administered across the population to reduce the risk of another wave significantly. There are several medium-ter m challenges that the German economy faces , chief among them “de- globalisation ” and “de- carbonisation ” . None of these , however, will prevent the economy from continuing its cyclical recovery over the coming quarters.