German economy shrinks in fourth quarter as rising supply takes its toll

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Germany’s economy shrank 1% in the last three months of last year as the latest coronavirus restrictions and supply chain bottlenecks kept output below levels. before the pandemic.

The Federal Statistical Office released initial estimates on Friday showing Europe’s largest economy managed 2.7% growth last year, despite fourth quarter output falling 0.5 to 1 % compared to the previous quarter.

The figures mark a rebound from 2020, when German gross domestic product shrank 4.6% in a post-war record recession 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 rebounded above pre-pandemic output levels.

Georg Thiel, chairman of Destatis, Germany’s statistics agency, said the country’s GDP remained 2% below pre-pandemic levels. “Despite the current pandemic situation and increased supply and material bottlenecks, the German economy has been able to recover from the crisis of the previous year, although economic output has not yet reached pre-crisis level.

Growth would have been weaker without the additional contribution of licensing fees collected by German vaccine developer BioNTech, which boosted overall GDP by 0.5 percentage points last year, according to Destatis.

Germany’s vast manufacturing sector has been crippled for months by supply chain delays and shortages of materials such as semiconductors. Its broader services sector is also hampered by new restrictions to contain a record rise in coronavirus infections.

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

Economists expect the German economy to rebound strongly later this year once coronavirus restrictions are lifted and supply bottlenecks ease. But they fear that if the problems persist, the country could slide into recession, defined as two consecutive quarters of falling GDP.

Carsten Brzeski, head of macro research at ING, said: “The annual figures mask a contraction in the economy in the final quarter of 2021, underscoring the high risk of the economy sliding into outright recession at the turn of the century. ‘year.”

Last month, the Bundesbank cut its forecast for German growth, but said it still expected the economy to rebound above pre-pandemic GDP levels in the coming months with a growth of 4.2% in 2022, driven by a “boom in private consumption”, as well as increased exports and business investment.

“From the beginning of the summer, we expect a strong economic recovery again with the seasonal decline of the krona,” said Jörg Krämer, chief economist at Commerzbank. “This is also supported by the fact that manufacturing industry order books are fuller than at any time since the start of statistics in the early 1960s.”

Destatis said output in the country’s manufacturing sector last year remained 6% below 2019 levels, while the deficit in the sports, culture and entertainment sector was 9.9%.

This was partly offset by a rebound in the public sector, which was boosted by increased government spending, with the country’s budget deficit increasing slightly to 153.9 billion euros last year, the second highest high since the reunification of the country more than 30 years ago.

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