German economy shrank 5% in 2020 as pandemic shut businesses2 min read . Updated: 14 Jan 2021, 03:40 PM IST
- The government ran a budget deficit of 4.8% of gross domestic product, the biggest since 1995
- Chancellor Angela Merkel has sounded private warnings that another 10 weeks of lockdown might be necessary to curb a new variant of the coronavirus that risks driving up infections
Output shrank 5% amid recurring lockdowns and restrictions, according to a preliminary estimate by the statistics office. The government ran a budget deficit of 4.8% of gross domestic product, the biggest since 1995.
Germany is the first advanced economy to publish full-year figures, and it’s likely to fare better than its major European peers. Economists estimate France and Italy both posted declines of about 9% and U.K. gross domestic product may have shrunk more than 10%.
The pain is extending into 2021 after a new surge in infections forced governments to extend lockdowns. Still, Germany has so far proved relatively resilient, in part due to extensive government support and its sizable manufacturing sector.
Retail sales and industrial activity were surprisingly strong at the end of last year, suggesting the economy might have recorded shallow growth in the final three months.
Official figures for the fourth quarter won’t be available until the end of this month, though the Federal Statistics Office is likely to provide an estimate later this morning.
What Bloomberg Economics Says...
“Germany’s economy fared better in the fourth quarter than anticipated and may escape a contraction. Set against that, Chancellor Angela Merkel has agreed to extend measures aimed at tackling the spread of the coronavirus. We estimate that keeping the economy in stasis until the end of January will prompt a contraction of around 1% in 1Q."
-- Jamie Rush and Maeva Cousin. Read more here.
Manufacturing has been a stronghold for Germany through the crisis as factories adapted more easily to health and safety restrictions than businesses that rely on face-to-face interactions. The sector makes up about a fifth of total output, and will likely help drive the recovery once global demand rebounds.
Restaurants, hotels and non-essential retailers will remain closed until at least the end of January. Chancellor Angela Merkel has sounded private warnings that another 10 weeks of lockdown might be necessary to curb a new variant of the coronavirus that risks driving up infections. A slow start to vaccination campaigns across the region is adding to uncertainty.
The Bundesbank remains optimistic though that Germany’s recovery will continue after an interruption in the winter half. With economic confidence picking up across the euro area, European Central Bank President Christine Lagarde also expressed confidence in a rebound for the currency bloc this year.
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