German economy stutters as COVID-19 restrictions push savings rate up

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BERLIN (Reuters) – The German economy contracted more than expected in the first quarter, as coronavirus restrictions prompted households to invest more money than ever in savings, data showed on Tuesday.

Europe’s largest economy contracted 1.8 percent quarter-on-quarter and 3.1 percent year-on-year, the Federal Statistical Office said. The figures, for which a Reuters poll predicted declines of 1.7% and 3.0% respectively, were significantly lower than the eurozone average.

Disposable income of German households rose slightly as the government invested billions of euros in job protection programs and cash donations such as additional family allowances. But restrictions on containing the pandemic have also made it more difficult for consumers to spend it.

“The drop in consumption is colossal,” said Thomas Gitzel, economist at VP Bank Group.

Household spending fell 5.4% over the quarter as the savings rate hit a record 23.2%.

Business investment in machinery and equipment declined slightly, although construction activity increased.

Exports grew 1.8% in the quarter, helped by strong demand from the United States and China, while imports rose 3.8%, meaning net trade also lowered overall growth.

Quarter-on-quarter GDP data compared to a euro area average of -0.6% and growth of 0.4% in France, while the economy of the United States – whose immunization program has progressed more rapidly – grew 1.6%.

Over one year, the euro zone economy shrank by 1.8%.

Gitzel of VP Bank said falling infection rates and advances in vaccinations meant the German economy would soon be back on a healthier footing, as COVID-19 restrictions were relaxed and then lifted.

“We are heading into a relaxed summer in which retailers in German cities can expect consumers to have a blast,” Gitzel said.

Reporting by Michael Nienaber, editing by Kirsti Knolle and John Stonestreet


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