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© Reuters. FILE PHOTO: The spread of the coronavirus disease (COVID-19) continues in Frankfurt

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By Michael Nienaber

BERLIN (Reuters) -The German government raised its growth forecast for Europe’s largest economy to 3.5% from a previous estimate of 3% as it expects household spending to support the recovery once COVID-19 restrictions are lifted, the economy minister said on Tuesday.

Germany is struggling to contain an aggressive third wave of COVID-19 infections as efforts have been complicated by the more contagious B117 variant, first discovered in Britain, and a relatively slow introduction of vaccines against the pandemic.

Presenting the government’s updated growth forecast, Economy Minister Peter Altmaier said Berlin expected gross domestic product to grow by 3.6% next year and the economy to reach its pre-pandemic level in 2022 at the latest.

“Today’s spring projection is an encouragement despite the currently serious infection situation,” Altmaier said.

The Ifo economic institute said on Monday that the third wave of COVID-19 cases and supply bottlenecks with chips and other industrial components were holding back the recovery and dampening Germany’s business outlook.

Asked how much growth the chip shortages will cost the German economy this year, Altmaier said the impact was hard to quantify at this stage.

Several German companies have already warned that the supply problems with chips and other components will lead to weaker-than-expected production in the second quarter.

The supply bottlenecks in production and overall economic recovery are expected to push up price pressures in Germany, with the government forecasting consumer price inflation to jump to 2.2% this year and to ease to 1.5% next year.

Altmaier said authorities should be able to lift most of the restrictions to contain the pandemic in the course of the summer.

The government wanted to help companies master the transition towards a carbon-neutral economy and was ready to adjust legislation in tandem with the European Union to support investment to help transform the steel industry and other sectors, Altmaier said.

The economy minister also said the government was supporting the domestic development of battery cells for electric vehicles with 3 billion euros, which should help Germany speed up its efforts to reduce carbon emissions in transport.

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