By Riham Alkousaa and Miranda Murray

Berlin (Reuters) – Germany’s top economic institutes reduced their collective forecast of 2021 European growth to 2.4%, but raised their projection for next year.

RWI, DIW and Halle’s IWH raised their 2022 projections to 4.8%, from 3.9%. This was because they believed that normal capacity utilization would be achieved over the coming year due to the gradual decrease in coronavirus-related pandemic effects.

Reuters published the first news on Wednesday about institutes planning to lower their forecast for 2021. It had been 3.7%.

Oliver Holtemoeller, Vice President of IWH, stated that “the challenges of climate change” and lower economic growth due shrinking labor force will decrease consumption opportunities.

Global manufacturing is being affected by an insufficient supply of parts, congestion at ports and lack of cargo containers. The disarray has been exacerbated by a labor market shortage that developed after last year’s pandemic-induced shut downs.

According to the Economy Ministry, Germany’s third quarter GDP growth is likely due to the expansion of services. However, the economy ministry expects that the rate of growth will stagnate by 2021.

The government expects inflation to remain stable until next year. This is when any one-off effects of the increase will cease. Because of significant rises in energy costs, the inflation rate at 4.1% currently stands is its highest point since 1993.

Five institutes project that inflation will reach 2.5% by 2022, and 1.7% by 2023.

We believe that the medium-term price stability target of monetary policy can be achieved. Holtemoeller stated at a press conference that this would mean a consumer price inflation rate of around 2% annually.

The current inflation forecasts were made based upon the assumption that wages would increase by 2 to 3.5% each year. According to the institutes, a rise in collective wages of more than 2.5%, like unions claimed, would alter the situation dramatically and result in high inflation rates.