The German economy is shrinking in the fourth quarter as supply-side turmoil picks up

The German economy shrank as much as 1 percent in the last three months of last year as recent coronavirus restrictions and bottlenecks in the supply chain kept production below pre-pandemic levels.

The Federal Statistical Office on Friday released the first estimates showing that Europe’s largest economy managed a growth of 2.7 percent last year, despite falling in the fourth quarter between 0.5 and 1 percent from the previous quarter.

The figures mark a recovery from 2020, when German gross domestic product fell 4.6 percent in a record high recession after the war caused by the Covid-19 crisis. But the country is lagging behind other major economies, including the United States, France and the United Kingdom, which have risen above pre-pandemic production levels.

Georg Thiel, president of Destatis, the German statistics bureau, said the country’s GDP remained 2 percent below pre-pandemic levels. “Despite the ongoing pandemic situation and rising supply and material bottlenecks, the German economy was able to recover from the recession of the previous year, although economic output has not yet reached pre-crisis levels.”

Growth would have been lower without the additional contribution from license fees earned by German vaccine developer BioNTech, which increased overall GDP by 0.5 percentage points last year, according to Destatis.

Germany’s huge manufacturing sector has been hampered for months by supply chain delays and a shortage of materials such as semiconductors. Its larger service sector is also being hampered by new restrictions to curb a record increase in coronavirus infections.

“The last quarter of 2021 was probably weak due to necessary restrictions in contact-intensive services and production difficulties due to persistent supply bottlenecks,” the German Ministry of Finance said in a statement.

Economists expect the German economy to rise sharply later this year once coronary restrictions are lifted and supply bottlenecks ease. But they worry that if problems continue, the country could slip into recession – defined as two consecutive quarters of declining GDP.

Carsten Brzeski, head of macro research at ING, said: “The annual figures mask a contraction in the economy in the last quarter of 2021, underlining the high risk of the economy falling into a direct recession at the turn of the year.”

The Bundesbank lowered its German growth forecasts last month, but said it still expects the economy to return above pre-pandemic levels of GDP in the coming months with 4.2 percent growth in 2022, also boosted by a “boom” in private consumption “. such as higher exports and business investment.

“From early summer onwards, we expect a strong economic recovery again with the seasonally declining corona,” said Jörg Krämer, chief economist at Commerzbank. “This is also supported by the fact that production order books are fuller than at any time since statistics began in the early 1960s.”

Destatis said that production in the country’s manufacturing sector last year remained 6 percent below the 2019 level, while the deficit in the sports, culture and entertainment sector was 9.9 percent.

This was partially offset by a recovery in the public sector, which was boosted by increased public spending as the country’s budget deficit rose slightly to € 153.9 billion. last year, the second highest since the country’s reunification more than 30 years ago.

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