Berlin The German economy is weakening again: economic output fell in the fourth quarter of 2021, according to figures published by the Federal Statistical Office this Friday. Gross domestic product (GDP) contracted between October and December 0.7 percent. For comparison: In the same quarter of the previous year, when the pandemic had hit Germany much harder again, the plus was 1.4 percent.
The Federal Republic is thus well on the way to a recession. Because when GDP falls for two quarters in a row, economists speak of a technical recession. Torsten Schmidt, economics chief at the Leibniz Institute for Economic Research in Essen (RWI), expects the economic slowdown to continue in the first quarter.
Most recently, economic output had shrunk in the first quarter of 2021. There was only a technical recession at the beginning of the 2020 pandemic. The situation then is not comparable to today. After a minus of 1.8 percent in the first quarter, GDP collapsed by ten percent in the second quarter.
The pandemic, but also supply chain problems, are putting a heavy strain on the German economy today. The high number of infections has a significant impact on the contact-intensive service providers. For example, sales in the hospitality industry fell by almost double digits in November.
Top jobs of the day
Find the best jobs now and
be notified by email.
Business surveys, data on restaurant reservations and mobility data point to further declines. Simon Junker, economics expert at the German Institute for Economic Research (DIW), observes: “The currently extremely high number of corona infections is slowing down the German economy.”
Service providers suffer from people’s caution
Then there are the supply chain problems. Whether producers of electrical goods, furniture, clothing or toys: they all lack materials, raw materials and preliminary products.
But the situation has recently improved. The important Ifo business climate index has been rising again in January for some time. Especially in the industry, which suffers the most from the supply bottlenecks, the index made a significant leap.
Companies were happier with current business. In addition, optimism increased with regard to the coming months. From the point of view of those surveyed, the situation regarding delivery bottlenecks has eased somewhat.
But the next calamity is apparently already imminent: The Chinese container ports are the linchpin for international trade, seven of the ten largest ports are in the Asian country. With its rigid containment measures in the corona pandemic, China had already caused chaos in international trade on several occasions.
In view of the particularly contagious virus variant Omicron, Beijing is likely to tighten its measures again – which in turn is likely to lead to further upheavals. The Kiel Trade Indicator, in which the Institute for the World Economy (IfW) regularly evaluates global data on ship movements, has already provided the first indications of this development.
The most recent survey from a few days ago clouds the outlook: the movements of ships in front of the ports of China, which are supposed to bring goods to other countries, have recently decreased significantly by 4.9 percent.
Omikron provides blockades at Chinese ports
On the Red Sea – the most important shipping trade route between Europe and Asia – 15 percent fewer goods are currently on the move than would be expected under normal circumstances. The gap was last this large in mid-2020, when the pandemic forced numerous economies into lockdown for the first time.
Although the trade figures for January have risen in most countries, Vincent Stamer, who is responsible for the Kiel Trade Indicator at the IfW, states: “However, it is becoming apparent that the omicron outbreak in China and the Chinese government’s attempts to contain it through tough lockdowns and plant closures in the spring are likely to have negative consequences for Europe.” In addition, lockdowns in China will also affect German exports.
If Omikron hit China’s economy as hard as the alpha variant right at the beginning of the pandemic, this would have enormous consequences for the German economy, as a simulation calculation by the analysis and consulting company Prognos shows. The “Süddeutsche Zeitung” had reported on it.
Accordingly, the growth forecast for 2022 would have to be halved from around four percent to just 2.1 percent. In absolute terms, the Federal Republic lost a good 60 billion euros in additional economic output.
This increases uncertainty as to when the weakening German economy can permanently exit crisis mode. A two-part year is ahead. With the expected decline in the number of corona infections in spring and a gradual resolution of the supply bottlenecks, there is hope that there will be a major upswing from the second quarter.
The economic forecasts of the federal government and those of the research institutes ultimately assume that the pre-crisis level will be reached towards the end of spring. However, given the current uncertain situation, it is still difficult to predict whether this will be the case. Because first of all, in all likelihood, there will not be an upswing – but a recession.
More: How Habeck and Lindner struggle for the annual economic report