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Germany will need two years to recoup growth lost in recession, Bundesbank says

FILE PHOTO - Two women wearing protective masks cross a bridge in front of the skyline in Frankfurt, Germany, March 28, 2020, as the spread of the coronavirus disease (COVID-19) continues. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - Germany’s economy will shrink significantly this year and may need two years to make up the lost ground, its central bank said on Friday, joining a number of forecasters predicting only a slow recovery from a coronavirus-induced recession.

The euro zone’s biggest economy will contract by 7.1% in 2020 based on calendar adjusted figures and 6.8% according to unadjusted data, the Bundesbank said in its biannual projections, days after the government agreed a 130 billion euro stimulus scheme.

The Bundesbank’s projections are now broadly in line with outlooks provided by the government and its Council of Economic Experts, which both predicted a drop in the 6% to 7% range.#

Much of Germany’s economy was shuttered for months amid the pandemic and restrictions are only slowly lifted.

For 2021, adjusted growth is seen at 3.2%, and at 3.8% in 2022, the Bundesbank added.

“Public finances make a significant contribution to stabilisation,” Bundesbank President Jens Weidmann said. “New stimulus is appropriate in the current situation and I have a positive assessment on the government’s economic stimulus programme.”

The Bundesbank’s figures come a day after the European Central Bank downgraded its forecasts for the euro zone, predicting a GDP drop of 8.7% in 2020 as its baseline case and a 12.6% fall in its “severe” scenario.

Reporting by Balazs Koranyi; editing by John Stonestreet