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Shoppers walk along Cologne's main shopping street, in Germany, on Dec. 12, 2020.Wolfgang Rattay/Reuters

The German government has cut its economic growth forecast for this year to 2.6 per cent, but lifted its estimate for next year to 4.1 per cent as supply problems are delaying the recovery in Europe’s largest economy, two sources familiar with the decision said on Tuesday.

The revised government forecast for gross domestic product growth compares with an April prediction for the economy to grow by 3.5 per cent in 2021 and by 3.6 per cent in 2022.

For 2023, the government now expects economic growth to normalize with an expansion rate of 1.6 per cent, the two sources told Reuters on condition of anonymity.

Economy Minister Peter Altmaier will present the government’s updated growth forecasts at a news conference on Wednesday. A spokesperson for the Economy Ministry declined to comment on the updated figures.

The scarcity of semiconductors and other intermediate goods, caused by supply chain disruptions because of the COVID-19 pandemic and a rise in demand for chips in an increasingly digitalized world, is holding back German manufacturing output.

In addition to the supply problems with electronic components, companies are also struggling to meet high demand because of raw material shortages.

The widespread bottlenecks in production, coupled with unusually high demand, are leading to price increases and this is why the German government expects consumer price inflation to surge to 2.9 per cent this year, one of the sources told Reuters.

But the government is sticking to its assessment that the price surge will be temporary, and sees inflation easing to 2.2 per cent in 2022 and to 1.7 per cent in 2023, the source said. The figures compare with consumer price inflation of 0.6 per cent in 2020.

The mixed growth outlook for the economy comes after the Ifo institute said on Monday that business morale deteriorated for the fourth successive month in October and hit a six-month low.

It also chimes with the latest assessment of the central bank, which said on Monday economic growth is likely to slow sharply in the fourth quarter, with full-year growth now likely to be “significantly” below its 3.7 per cent prediction made in June.

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