German economy shrinks at the end of 2021

The corona crisis still has the German economy under control. The economic recovery suffered a significant damper at the end of last year. The next few months are not likely to be easy either.

The fourth corona wave slowed down the German economy at the end of last year. Gross domestic product (GDP) shrank by 0.7 percent in the fourth quarter of 2021 compared to the previous quarter, as the Federal Statistical Office announced in Wiesbaden on Friday in an initial estimate. Compared to the fourth quarter of 2019, the quarter before the start of the Corona crisis, GDP was 1.5 percent lower.

Wide spreading pandemic weighs on retail and hospitality

The tightening of restrictions against the pandemic, which is spreading more rapidly again, put a particular strain on the retail and hospitality sectors. Private consumption decreased in the fourth quarter of 2021 compared to the previous quarter.

At the same time, bottlenecks in raw materials and preliminary products such as semiconductors are hitting the industry. The order books of many companies are well filled, but often cannot be processed at the usual pace due to a lack of material.

In view of the spreading omicron variant of the corona virus, the coming months are not likely to be easy either. Economists assume that German economic output could also shrink in the first quarter of 2022 and that the economy will only really pick up again in the spring.

Consumer sentiment brightens somewhat

However, the mood among consumers and companies has recently brightened somewhat. The Ifo business climate, Germany’s most important economic barometer, rose surprisingly in January. The companies surveyed assessed the current situation somewhat worse than in the previous month. However, expectations for the coming six months have risen significantly.

According to the consumer research company GfK, consumers were also somewhat more optimistic again at the beginning of the year, despite rising incidences and inflation. “If the infection situation calms down in the spring so that restrictions can be lifted, the long-awaited recovery in the domestic economy will also take place,” said GfK consumer expert Rolf Bürkl optimistically.

Growth of 3 to 4 percent expected for 2022

According to the latest forecasts, Europe’s largest economy is likely to grow by between around 3 and 4 percent in 2022 as a whole. The federal government now expects gross domestic product to grow by 3.6 percent. The previous government had assumed 4.1 percent in the fall.

Federal Economics Minister Robert Habeck (Greens) spoke in the annual economic report of a difficult economic “catch-up phase”. In the first quarter of 2022, economic output is likely to be impacted by the pandemic and the restrictions, especially in the service sectors, the report said. Delivery bottlenecks also continued to have a negative effect.

According to the latest data, the Federal Office calculated growth of 2.8 percent for the past year as a whole. In the crisis year 2020, Germany’s economic output collapsed by 4.6 percent.