Economic Output Shrinks Slightly at the End of 2020
The lockdown that entered into force in November is leaving its mark on the German economy. The ifo Institute expects economic output to have contracted by 0.1 percent in the final quarter of 2020. The shrinking of output by 5.0 percent for 2020 means a shortfall of around EUR 200 billion in economic output for that year as a whole, compared with the 1 percent growth that was forecast at the end of 2019. The economy is likely to grow by just 0.5 percent in the first quarter of 2021. “Unlike in the spring of 2020, economic output is currently suffering in just a few sectors of the economy,” says Timo Wollmershäuser, Head of Forecasts at ifo.
“The closure of parts of the local retail sector is unlikely to have much impact on the overall economy in the final quarter of 2020, since much of the shortfall was offset by online retail,” Wollmershäuser adds. “But hotels and restaurants in particular, as well as service providers in arts, entertainment, and recreation, are likely to have seen their value added shrink again in the fourth quarter at high double-digit rates. By contrast, manufacturers and service providers serving the manufacturing sector have so far continued to recover largely unaffected by Covid and government infection control measures. Their value added is likely to have seen a big increase at the end of the year.”
All in all, last year the coronavirus pandemic and the infection control measures plunged the German economy into one of the deepest crises of the post-war period. Compared with the previous year, gross domestic product (GDP) contracted by 5.0 percent, the German Federal Statistical Office announced today. Only during the global financial crisis in 2009 was the decline even greater, at 5.7 percent.
The new lockdown will delay the recovery this year. However, it is difficult to accurately forecast economic development, since it depends to a large extent on the duration and scope of the government’s infection control measures. Assuming, for example, that the retail sector reopens in February and the lockdown in hospitality and other service sectors ends at the end of March, GDP is likely to rise by only 0.5 percent in the first quarter. Once the lockdown is eased, a rapid and strong recovery should then begin, as the past year has already shown. If consumer behavior also largely returns to normal by the summer, for example because the Covid-19 vaccination campaign is well advanced, then production of goods and provision of services could return to pre-crisis levels as early as the second half of the year. On average for the year, gross domestic product could then be expected to increase by around 4.5 percent.
