The Bundesbank said on Friday that supply chain bottlenecks and new restrictions due to the COVID-19 pandemic will halt growth in Germany around the turn of the year, postponing the recovery of Europe's largest economy.

Germany's enormous industrial sector has been unable to fulfil growing demand in recent months due to supply shortages, and bottlenecks are now projected to persist well into next year, delaying what was thought to be a strong rebound.

"As a result of the pandemic, the German economy will suffer a setback in the final quarter of 2021 and the first quarter of 2022," the central bank said in a biannual update of its economic forecasts. "However, the German economy is set to pick up significant momentum again in the spring of next year."

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"While pandemic-related restrictions and supply constraints for intermediate goods are projected to stifle growth in the fourth quarter of 2021 and the first quarter of 2022, private consumption is expected to increase significantly from spring onwards."

The bank now forecasts German growth of 4.2% in 2022, down from 5.2% six months ago and below the European Commission's forecast of 4.6%.

However, growth in 2023 is now expected to be 3.2%, nearly double the 1.7% anticipated in June, implying that the expansion would be postponed rather than lost. Inflation forecasts have also been revised upward.

Throughout the Bundesbank's projection horizon, price growth is expected to remain above the European Central Bank's 2% target.

The German central bank forecasts consumer price inflation of 3.6% in 2022, up from 2.2% six months ago, before falling to 2.2% in 2023 and 2024.