Germany’s extended shutdown to curb the coronavirus’s spread will weigh on Europe’s largest economy but not choke it off, with economic institute Ifo forecasting quarterly growth of 3% in the second quarter.
Chancellor Angela Merkel and the country’s 16 states agreed on Tuesday to extend a shutdown until mid-February as Germany, once seen as a role model for fighting the pandemic, struggles with the second wave of infections.
Ifo said the gross domestic product would likely stagnate in the first quarter before growing by 3% quarter-on-quarter in spring.
“Every week with an extended lockdown directly leads to losses in sales, production, and added value,” Ifo economist Timo Wollmershaeuser said.
Commerzbank economist Joerg Kraemer said the lockdown’s impact on retailers and services would likely lead to a GDP contraction of 2% in the current quarter. Adding the economy would normally grow by 2% without restrictions on activity.
Last year, Germany’s economy shrank by 5%, less than expected and a smaller contraction than during the global financial crisis, as unprecedented government rescue and stimulus measures helped cushion the shock of the pandemic.
The statistics office on Jan. 29 will publish GDP figures for the fourth quarter when some lockdown measures had already been implemented.
On Monday, before the lockdown extension was agreed, the Bundesbank said the economy was managing to stay afloat but could suffer a “sizeable setback” if coronavirus curbs were extended again.
Germany’s economy post-COVID
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) on Monday.
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.
After a strong increase of 8.5 percent in the third quarter, Germany’s gross domestic product (GDP) only grew by 0.1 percent 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 industrial 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 German economy’s further development 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 percent 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.”