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German economy shrank as much as 1% in final quarter of 2021

Germany’s economy contracted by as much as 1% in the final quarter of 2021 as the emergence of the coronavirus’s omicron strain added to drags on output from supply snarls and the fastest inflation in three decades.

Gross domestic product shrank by between 0.5% and 1% in the three-month period, the Federal Statistics Office said Friday at a briefing. For the year as a whole, it advanced 2.7%, in line with expectations.

That, however, leaves GDP still 2% short of its level in 2019, before Covid-19 struck, and trailing Europe’s other big economies in healing from the pandemic. Analysts estimate France, Italy and Spain will report expansion of 4.5% or more later this month.

The continent’s largest economy is tipped to make up ground in the year ahead—even as omicron’s rapid spread threatens stricter curbs on movement, staff shortages and production cuts in the near term.

While a flood of infections triggered by the variant will weigh during the winter months, there’ll be “significant momentum” from the spring onward, according to the Bundesbank, which predicts growth of 4.2% for the whole of 2022.

First, though, Germany may have to come through a technical recession. Dekabank economist Andreas Scheuerle forecasts output will shrink 0.8% between January and March—a second straight quarter of contraction.

He says Friday’s full-year figure suggests the economy must have performed better than so-far reported in previous quarters.

A large share of Germany’s struggles is rooted in its outsized reliance on manufacturing—a boon during previous crises that turned into a liability as supplies of microchips dried up and other components became harder to source. Carmakers have suffered the most, with almost a fifth of employees in the industry furloughed in December.

As omicron takes hold, more stringent rules on vaccination may ease some pressure on factories. Chancellor Olaf Scholz reaffirmed his support on Wednesday for making shots compulsory for all adults, while Volkswagen AG stepped up its own vaccination push.

Inflation has been another obstacle. Nearly 80% of non-food retailers surveyed by industry group HDE said they’re unhappy with end-of-year sales, which were also hurt by rules banning unvaccinated customers who hadn’t recovered from Covid-19.

Private spending was unchanged last year, while the savings rate remained elevated at 15%.

Those savings may now prove crucial in cushioning the hit from soaring prices. Germany’s government is also considering aid for households struggling to pay surging energy bills.

A bright spot has been BioNTech SE, whose partnership with Pfizer Inc. produced one of the world’s first coronavirus vaccines. Revenue from the Mainz-based drugmaker alone may have added about half a percentage point to economic growth last year, according to Sebastian Dullien, director of the IMK Macroeconomic Policy Institute.

He’s optimistic for 2022, predicting expansion of 4.5%.

“We expect supply-chain disruptions to ease in the course of the year, allowing production to catch up,” Dullien said. “At the same time, consumers are looking to spend a significant part of their extra savings if the pandemic allows. That makes me confident the economy will have a good year.”

Bloomberg
Bloomberg

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© Bloomberg
The author’s opinion are not necessarily the opinions of the American Journal of Transportation (AJOT).

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