German officials predict that the renewal of the pandemic lockdown will not have the same severe impact as the restrictions earlier in 2020.
The German economy stagnated at the end of last year, likely avoiding a double-dip recession that engulfed the eurozone.
The statistics office has predicted that the country’s renewed pandemic lockdown will not have the same severe impact as restrictions earlier in 2020. It estimates production remained stable in the fourth quarter, capping a year that saw a economic contraction of 5%.
The government recorded a budget deficit of 4.8 percent of gross domestic product, the largest since 1995.
Germany is the first advanced economy to release GDP figures for 2020, and it is likely to have fared better than its main European peers. Economists predict that France and Italy both saw declines of around 9% and that the UK’s gross domestic product may have fallen by more than 10%.
The pain continues until 2021 after a new surge in infections forced governments to extend lockdowns. Yet Germany has so far been relatively resilient, in part thanks to strong government support and its large manufacturing sector.
“The effects of the second lockout and tighter restrictions to tackle the pandemic will be critical for economic developments, as well as government support measures,” said Albert Braakmann, head of national accounts and prices at the bureau of statistics.
The statistics office will release official figures for the fourth quarter on January 29.
The manufacturing sector has been a stronghold of Germany during the crisis, as factories have more easily adapted to health and safety restrictions than businesses that rely on face-to-face interactions. The sector accounts for around a fifth of total output and is likely to help stimulate 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 issued private warnings that an additional 10 weeks of lockdown may be needed to curb a new variant of the coronavirus that is at risk of causing infections. A slow start to vaccination campaigns in the region adds to the uncertainty.
The Bundesbank remains optimistic, however, that Germany’s recovery will continue after a hiatus in the mid-winter. With the recovery of economic confidence in the euro area, the President of the European Central Bank, Christine Lagarde, also expressed confidence in a rebound of the monetary bloc this year.
“We want the German economy to return to growth this year,” Economy Minister Peter Altmaier said at a press conference in Berlin after the publication of the GDP. “Perhaps a little less than initially hoped for due to the new outbreak of the pandemic – but a recovery which may lead to others in Europe and the world, and which may contribute to a positive development of the economy global.