Germany is headed for its second recession of the pandemic after the emergence of the coronavirus’s Omicron strain compounded drags on output from supply snarls and the fastest inflation in three decades.
Europe’s largest economy shrank by 0.5% to 1% in the final quarter of 2021, according to an estimate released on Friday by the Federal Statistics Office. With new Covid cases at a record and the key manufacturing industry still struggling to source components, Dekabank, NordLB and ABN Amro all predict another contraction this quarter.
For the whole of last year, GDP rose 2.7% — matching estimates but still short of its pre-crisis level. Germany’s recovery trails France, Italy and Spain, which are expected to report 2021 expansions of 4.5% or more later this month.
The size of the year-end slump came as a surprise after the Bundesbank last month signalled only a slight decline was likely. But there’s little sign things will improve soon.
Germany reported more than 90,000 daily new infections on Friday, threatening staff shortages, production cuts and potentially tighter restrictions. Meanwhile, power and heating costs have soared, while microchips and other inputs for factories remain scarce.
“I don’t have a whole lot of imagination for positive impulses — supply bottlenecks are persisting, the surge in energy prices is only now reaching consumers, and services are weakened by the virus,” said Andreas Scheuerle, an economist at Dekabank, who sees output falling 0.8% between January and March.
The northern hemisphere spring, however, should mark a resumption in the pandemic rebound.
“Covid shouldn’t play a major role any more during the summer — energy prices should have been digested and supply-chain problems may have eased by then,” Scheuerle said. “So in the second and third quarters, we should see solid growth.”
The Bundesbank expects “significant momentum” from the spring onward, predicting full-year expansion of 4.2%.
A large share of Germany’s struggles is rooted in its outsize reliance on manufacturing — a boon during previous crises that turned into a liability as inputs became harder to find. Car makers are suffering the most, with almost a fifth of employees in the industry furloughed in December.
“Moving into 2022, the economic situation doesn’t seem to have improved,” said Aline Schuiling, senior economist at ABN Amro. “It won’t take much to slip into recession, though if fears of Omicron wane during the first quarter, the decline in output could turn out to be slightly less than at the end of last year.”
Bloomberg
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