MNI BRIEF: Fiscal, MonPol Should Normalise, GCEE Report Says

Germany's average inflation rate will be 3.1% in 2021 and 2.6% in 2022, according to the German Council of Economic Experts' Annual Report published Wednesday, with GDP likely to reach the level seen in Q4 2019 during the first quarter of next year. Germany's economic output will increase by 2.7 % in 2021 and by 4.6 % in 2022.

However, longer-lasting supply-side bottlenecks, higher wage settlements and rising energy prices could mean that these otherwise temporary drivers of prices become persistently higher inflation rates, the Council, which advises policymakers in Berlin, warned. The return of extensive Covid-19 lockdown measures could also further dampen Germany's recovery, although pent-up consumer and investment demand could produce a more rapid upturn.

Fiscal policy should return to normal without jeopardising the recovery, the GCEE said, while the ECB should "promptly communicate its strategy for ending its very expansionary monetary policy measures in order to prepare the fiscal policy of the member states and the financial markets for less expansionary monetary policy."