Germany may have fallen into recession again amid pandemic
Output could decline 'noticeably' in Q1 after activity hit by Omicron variant: Central bank
Sign up now: Get ST's newsletters delivered to your inbox
BERLIN • Germany may have fallen into its second recession since the Covid-19 pandemic erupted as the Omicron variant brought record infections that dragged down activity, according to the Bundesbank.
Output in Europe's largest economy may decline "noticeably" in the first quarter, having already shrunk by 0.7 per cent in the final three months of 2021, the German central bank said yesterday in its monthly report.
"In contrast to previous waves of the pandemic, it's not just the services sector that's hit by restrictions and adapted behaviour," the Bundesbank said. Pandemic-related absences by workers will "markedly" hit activity too.
The recovery may be rapid, however. A business survey published by IHS Markit yesterday showed private-sector activity growing at the fastest pace in six months this month, driven mainly by services activity.
A recession is technically defined as two consecutive quarters of economic contraction.
German manufacturers reported a further easing of the supply bottlenecks that have plagued factories around the world.
However, inflationary pressures remained strong, with German output prices advancing at the second-fastest pace on record.
Due to "very good" demand, the economy should rebound strongly in the spring as long as supply-chain pressures ease further and the Covid-19 pandemic continues to recede, according to the Bundesbank report.
Germany is moving past the peak of its latest virus outbreak, which has proven less lethal than previous waves. The government has agreed to gradually loosen restrictions on public life by the end of next month, meaning the economic damage may be short-lived.
"After these long two years, we deserve that things somehow improve again," German Chancellor Olaf Scholz told reporters after a meeting with the country's regional leaders last week.
"We can now withdraw the restrictions step by step, but we should continue to be careful."
The Bundesbank's assessment of the current quarter contrasts with that of economists polled this month by Bloomberg, who see output gaining 0.4 per cent from the previous three months.
The Bundesbank warned of parallel pressures on economic activity from Covid-19, saying the latest wave of infections that were stopping many from going to work would probably cause gross domestic product to shrink for the second quarter in a row between January and March.
BLOOMBERG, REUTERS
