German govt to cut 2022 growth forecast to 3.6% - draft

FILE PHOTO: German Economy and Climate Protection Minister Robert Habeck, Transport Minister Volker Wissing and Finance Minister Christian Lindner arrive with other members of the cabinet to pose for a family photo during a one-day confinement meeting at the Chancellery in Berlin, Germany January 21, 2022. REUTERS/Michele Tantussi/File Photo

BERLIN (Reuters) -The German government will cut its economic growth forecast for this year to 3.6% from its October estimate of 4.1%, according to a draft of the annual economic report seen by Reuters on Friday.

The coalition government of Social Democrats, Greens and Liberals, in power since December, expects the pandemic to further strain businesses and supply bottlenecks for products such as semiconductors to persist, further limiting companies’ growth, according to the draft.

Magazine Der Spiegel was first to report the new growth forecast.

The new government predicts inflation to reach 3.3% on average this year, after it soared to 3.1% in 2021 from 0.5% a year earlier and is still forecasting core inflation, excluding food and energy prices, to run at 2.5% in 2022, the draft said.

Most economists expect Europe’s largest economy to shrink again in the first three months of 2022 after a fourth-quarter contraction, driving it into another technical recession, defined as two consecutive quarters of declining output.

Germany’s BDI industry association said earlier this month it expected the nation’s economy to grow 3.5% this year, showing more caution than the government as it warned that companies could face another year of “stop-and-go” business due to the pandemic.

Reporting by Christian Kraemer, Holger HansenWriting by Riham Alkousaa, Kirsti KnolleEditing by Miranda Murray and Tomasz Janowski