German economic recovery stumbles as Covid cases hit record high


Germany is at risk of becoming the eurozone’s economic laggard as economists fear that restrictions aimed at containing a new wave of Covid-19 infections will affect consumer activity and exacerbate chain problems. supplies that are already strangling industrial production.

The German Council of Economic Experts, which advises the government, on Wednesday became the latest group to downgrade its growth forecasts in Europe’s largest economy, warning that supply problems weigh more heavily on consumers than expected. manufacturers.

“These bottlenecks on the supply side mostly slow down industrial production, and Germany is particularly affected, more than countries where industry represents a smaller share of GDP,” said Volker Wieland, professor. in Monetary Economics at Goethe University in Frankfurt. .

Wieland said the country’s economic recovery has remained intact, although it “will be delayed a bit until the bottlenecks are gradually resolved.” The council reduced its growth forecast for this year from 3.1 to 2.7 percent, but raised its growth forecast for next year from 4 to 4.6 percent.

That would give Germany one of the slowest growth rates of 2021 in the euro area, where aggregate output is expected to be 4% higher this year. Although the German economy has shrunk less than most eurozone countries last year, it should take longer to return to pre-pandemic levels than the bloc as a whole – although Spain still more late.

For the fourth quarter, the council predicted that the German economy would grow by only 0.4%, against 1.8% in the third quarter and well below the 1.2% forecast by the European Central Bank for the whole of the euro area during the last three months of 2021..

“Germany is increasingly looking like it is lagging behind the eurozone,” said Holger Schmieding, chief economist at Berenberg.

Another factor that economists see weighing down is the sharp rise in Covid-19 infections, with nearly 40,000 new daily cases reported on Wednesday, bringing the seven-day infection rate to a new high of 232 per 100,000 people.

“The government must lift all restrictions on growth imposed during the pandemic, by successfully stepping up the vaccination campaign,” German business lobby BDI said in a statement in response to the economic council’s report.

“The authorities must do everything in their power to ensure that the number of vaccinations increases again,” he added. “We cannot allow a small group of anti-vaccines to cripple society as a whole.”

Some regional governments, such as Hamburg and Saxony, are stepping up pressure on people to get bitten by restricting access to restaurants, gyms and other indoor public spaces to those who have been vaccinated or cured of the virus.

Oliver Rakau, an economist at Oxford Economics, said the rise in Covid-19 infections was one of the reasons he recently lowered his growth forecast in Germany.

“I think it’s a bit underestimated that the service industry may be struggling in the fourth quarter because if you look at the data from Google Mobility, there are already signs that higher Covid infections are causing a slowdown in consumer services, ”Rakau said.

Just over 66% of the German population has been fully vaccinated.

Wieland, however, downplayed the risk that another foreclosure could cripple the economy, saying, “If businesses are closed, it will cause a slowdown in the winter. But I don’t think it’s likely that it will come to this.

He said the so-called “2G rules”, preventing unvaccinated people from accessing indoor spaces, had spurred increased vaccination rates in other countries. “It can even accelerate growth,” he added.

Katharina Utermöhl, an economist at Allianz, said that rising German inflation, which reached a 28-year high of 4.6% in October, would also reduce household disposable income. “Consumption remains our last hope for growth during the winter months, but downside risks increase,” she said.

The council raised its forecast for annualized German inflation from 2.1 to 3.1 percent this year and from 1.9 to 2.6 percent next year.


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