As coronavirus calms down, German economy shows green shoots of recovery

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Frankfurt: As the COVID-19 lockdown gradually eased in the spring, German consumer demand has helped the economy grow. High public spending, meanwhile, has created a big hole in public spending figures.

The German economy grew 1.6% in the second quarter of 2021, largely on domestic consumer spending as the coronavirus lockdown was eased.

The growth helped the German economy out of an economic trough that saw it contracting earlier in the year.

Meanwhile, German government spending has remained in the red as national, state and local governments have borne much of the economic burden of the pandemic.

The crisis precipitated a decline in economic performance of minus 2% for the first quarter of 2021.

Gross domestic product increased by 1.6% between April and June compared to the previous quarter, according to figures released Tuesday by the Federal Statistical Office.

With containment restrictions reduced as spring approaches, final consumer spending in the second quarter of 2021 has increased significantly from the start of the year.

Two key factors helped fuel the rebound. Household final consumption expenditure increased 3.2 percent from the first quarter, while a measure of government spending increased 1.8 percent.

The effects of the pandemic still appear to be marked, however. Compared to the fourth quarter of 2019 – the quarter before the onset of the coronavirus crisis – GDP was 3.3% lower.

Public spending to cushion the economic blow of the crisis has left an 80.9 billion euro ($ 95 billion) hole in public finances for the first half of 2021.

The amount was equivalent to a public sector deficit of 4.7% of GDP, the largest in 26 years.

ING Bank chief economist Carsten Brzeski told the DPA news agency that he saw the large public deficit as the “hidden face of the rapid economic recovery“.

“Because the state bears most of the economic damage caused by the pandemic, the economy will be back to pre-crisis levels by the end of the year,” the economist said.

“However, the state budget will be even more heavy,” he said.


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