Setback for the economy: Germany’s economy is shrinking again

Status: 01/28/2022 11:25 a.m

While the economy in other European countries is picking up again, Germany’s economy is lagging behind. Even a recession at the beginning of the year cannot be ruled out.

The coronavirus variants Delta and Omikron significantly slowed down the economy in Germany at the end of the year. The economy shrank between October and December by 0.7 percent compared to the previous quarter, as reported by the Federal Statistical Office. That is significantly more than economists had expected.

Stricter corona restrictions put a particular strain on the retail and hospitality sectors. Private consumption decreased in the fourth quarter of 2021 compared to the previous quarter. At the same time, bottlenecks in raw materials and preliminary products such as semiconductors are hitting the industry. The order books of many companies are well filled, but often cannot be processed at the usual pace due to a lack of material.

Improvement from spring

Many experts are assuming that the Omicron wave will also weigh on the economy in the current first quarter. This could lead to a technical recession. That would be the case if economic strength fell for two consecutive quarters. From the spring, most experts expect a noticeable revival when the pandemic is likely to subside.

“From early summer, the German economy should recover strongly with the ebb of Corona,” says Jörg Krämer, chief economist at Commerzbank. On the one hand, this is supported by the large order backlog. “In addition, consumers are likely to spend some of the high additional savings made during the pandemic, which amount to more than ten percent of their disposable income. In the summer, German gross domestic product could have reached its pre-crisis level again,” predicts the economist.

Habeck sees robust economy

The federal government is expecting economic growth of 3.6 percent overall for this year and 2.3 percent for 2023, as Federal Minister of Economics Robert Habeck said in the Bundestag. “We have a robust economy and a stable job market.” At the beginning of the year, however, the momentum was still subdued due to the ongoing restrictions to combat the pandemic, according to the Green politician.

Habeck spoke out in favor of economic recovery having to go hand in hand with effective climate protection and sustainable progress in order to continue to secure prosperity and competitiveness.

According to the latest data, the statistics office calculated growth of 2.8 percent for the past year. In the crisis year 2020, Germany’s economic output collapsed by 4.6 percent.

French economy ‘spectacularly recovered’

In other European countries, the economy is doing much better in some cases. France’s economy, for example, grew more strongly over the year as a whole than it has in 52 years. Gross domestic product rose by 7.0 percent last year – the strongest since 1969, according to the national statistics office.

“The French economy has recovered spectacularly and that has wiped out the economic crisis,” Finance Minister Bruno Le Maire told France 2 TV channel. “There are still some areas that are struggling, like tourism and the hospitality industry. But most are recovering very strong, and that creates jobs.”

In Spain the picture is similar. According to the statistics office, economic growth there was 7.2 percent in 2021.

Why Germany is growing more slowly

There are two reasons for the faster rate of growth than in Germany. On the one hand, many national economies were hit much harder by the consequences of the pandemic than Germany, so there is now greater potential to catch up.

In addition, the share of industrial production in the overall economy in this country is much higher than in Spain, for example, as a glance at the car industry alone shows. This is why global delivery bottlenecks and the lack of chips are having a particularly strong slowdown on German growth.

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