Germany’s economic recovery halted by 2nd Covid lockdown

The ongoing Covid-19 measures continue to weigh on the German economy in the first quarter of 2021, according to the monthly economic report published by the Ministry for Economic Affairs and Energy (BMWi).

The recovery after the end of the first Covid-19 lockdown in spring last year had “largely come to a halt for the time being in the wake of the second lockdown,” BMWi noted in the reported published on Monday, Xinhua news agency reported.

After a strong increase of 8.5 per cent in the third quarter, Germany’s gross domestic product (GDP) only grew by 0.1 per cent in the fourth quarter of last year, according to the Federal Statistical Office (Destatis).

Germany entered a lockdown in November when the second Covid-19 wave hit the country. Health regulations have since been tightened and the lockdown was extended until at least March 7.

Non-essential shops, restaurants and leisure facilities are closed and strict contact restrictions apply.

The “economic picture remains divided,” BMWi noted. While Germany’s industry sector continued to develop robustly, the service sector including hospitality, arts and entertainment was “heavily restricted” by the measures to contain the Covid-19 pandemic.

BMWi noted that the further development of the German economy would largely depend on how quickly the rise in the number of infections during the winter could be contained.

Economic growth in the euro area is expected to be at 4.9 per cent this year, according to a recent report by the European Forecasting Research Association for the Macro-Economy (EUROFRAME).

A significant economic recovery in Europe is likely to start when large parts of the population are vaccinated and Covid-19 infections fall significantly, which is expected from the second quarter onwards, the Kiel Institute for the World Economy (IfW Kiel), part of the EUROFRAME Group, noted on Monday.

“In the areas of personal services and private consumption, there is a lot of catch-up potential,” looking at vacation or visits to restaurants, said Klaus-Juergen Gern, an economic researcher at IfW Kiel, adding “Economic activity in these areas is likely to rebound abruptly as soon as the pandemic situation allows.”