Germany braces as hard lockdown set to trigger double dip recession

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Germany is heading into a double-dip recession this winter after Berlin imposed a strict lockdown, economists predicted, undermining hopes that Europe’s largest economy will return to pre-pandemic levels. here the beginning of 2022.

The government of Chancellor Angela Merkel ad on weekends, schools and most stores are said to be closed from Wednesday to January 10 to contain a surge in coronavirus infections.

“Germany must prepare for a second recession,” said Jörg Krämer, chief economist at Commerzbank. “The additional closures affect, among other things, all stores except those for daily needs. . . hairdressers and especially schools and nurseries for children. “

Mr Krämer said the brutal lockdown would reduce Germany’s daily growth rate by 4 percentage points, down from 2.5 percentage points per day in the previous lockdown lite.

The economy would shrink 1 percent in the fourth quarter and 0.5 percent in the following quarter, he said – meeting the definition of a recession, which is two successive quarters of negative growth. But he stuck to his forecast for 4.5% growth next year.

Carsten Brzeski, an economist at ING in Frankfurt, said it was “too early to say” whether the country’s economy will decline in the first quarter of next year, as he cuts his forecast for the current quarter. from minus 1% to minus 1.5%. hundred.

Germany’s economy will shrink 1% in the fourth quarter and 0.5% in the next quarter, according to Jörg Krämer, chief economist at Commerzbank © Alex Kraus / Bloomberg

“I guess the foreclosure measures will not be relaxed significantly, which increases the chances of a technical recession and, worse yet, more structural damage in the form of bankruptcies,” Brzeski said. The hard lockdown would delay Germany’s return to pre-pandemic levels from the last quarter of next year to the first quarter of 2022, he added.

Germany has benefited from a large manufacturing sector, which has been less disrupted by coronavirus brakes, while benefiting from increased exports to China. This was highlighted by Eurostat data published Monday, showing that industrial production in the eurozone exceeded expectations by climbing 2.1% in October.

“While consumer spending will experience a sharp decline, the resilient German industry will continue to cushion the negative impact thanks to the continued tailwind from China,” said Katharina Utermöhl, economist at Allianz.

However, analysts fear that Germany’s control over the virus slipped after the country reported a record high of nearly 30,000 new infections and 598 deaths from Covid-19 on Friday.

“After being the relative European success of the first wave, Germany has struggled in recent weeks and one would expect Merkel to be keen to get this under control as a priority over the last year of his 16-year reign, ”Deutsche Bank analysts said Monday in a note to clients.

“However, in the short term, it will be a blow to activity and confidence even if the damage will be limited by knowledge of the imminent deployment of the vaccine,” they added. Deutsche Bank has stuck to its forecast that the country’s economy is expected to contract 1.5% in the fourth quarter, before stagnating in the first quarter of next year.

The German central bank slightly raised its forecast for the economy to rebound to its pre-pandemic level by early 2022, overtaking the euro area as a whole, according to forecasts released on Monday but compiled before the last lockout announcement.

“The assumption here is that containment measures will be quickly relaxed from spring 2021 due to medical advances, and will eventually be completely phased out in the first months of 2022,” the Bundesbank said. He forecasts the economy to shrink 5.5% this year, before growing 3% next year and 4.5% in 2022.

Meanwhile, the French central bank predicts that its economy would rebound 5 percent next year but would not reach its pre-pandemic production level until mid-2022 after declining 9 percent this year.

The Banque de France’s forecasts were a little more pessimistic than its previous predictions in September, but close to those it had made in June, due to the “negative shock” of the second national lockout still partly in effect.

Fabio Panetta, a member of the executive board of the European Central Bank, has warned that 2021 will be another “pandemic year” requiring continued support for fiscal and monetary policy. If necessary, the ECB could extend its emergency bond purchase program, even after raising it to 1.85 billion euros last week, Panetta said in a speech on Monday.

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