BERLIN (BLOOMBERG) - Germany mapped out a path to reviving Europe's largest economy, with children returning to school as soon as this month and shops allowed to resume sales from March if the country's contagion rate continues to fall.

Chancellor Angela Merkel is set to defend the plan, which includes an extension of most lockdown measures until March 7, in a speech to parliament on Thursday morning (Feb 11).

Under the new guidelines - hammered out over five hours of intense talks with regional leaders on Wednesday evening - schools and day-care centres can restart in the coming days, and hairdressers will be allowed to open from March 1.

The decision on schools marked a win for state leaders over Merkel, who sought a more cautious approach because of the risks posed by fast-spreading strains. The German leader had her way in pushing through a longer extension of most lockdown measures - which were slated to expire on Feb 14. She also insisted on a low infection-rate threshold for reopening shops, while a deal on hotels and restaurants was pushed back.

Some states indicated they would allow elementary schools to resume from Feb 22, while Merkel had argued for maintaining consistent rules across the country and keeping children at home until the end of the month. Bavaria will wait before reopening schools.

"I had certain ideas of my own about opening day-cares and schools," the chancellor said at a news conference late on Wednesday following the talks with the premiers of Germany's 16 states. "It is simply not possible that I can assert myself as if I had a right of veto."

Tensions ran high in Berlin before the video call, amid mounting pressure to relax lockdown rules as the infection rate recedes.

"We want to do everything so that we don't get into a yo-yo scenario - up and down, open and closed," said Merkel, who has come under fire for the relatively slow pace of Germany's vaccine rollout.

Criteria were set that will allow the economy to slowly return to a semblance of normality, despite risks posed by fast-spreading strains of the virus. Merkel and the state leaders will hold a next round of talks on March 3 to discuss the possibility of loosening curbs further if contagion rates allow.

"We need a concept by the beginning of March, which sets out what's possible and what's not," Stephan Weil, the premier of Lower Saxony, said on Thursday in an interview with WirtschaftsWoche magazine. "Depending on the region, that could mean opening up, but unfortunately it could also mean further restrictions."

Officials were under pressure to act as infection rates fell toward the government target of 50 per 100,000 people over seven days. After peaking close to 200 before Christmas, the level dropped to 64.2 on Thursday, according to the RKI public-health institute.

Despite the slowing outbreak, Merkel continues to worry about mutant strains. She's warned that around a fifth of Germany's virus cases could be a more contagious UK variant - considerably more than the 6 per cent indicated in studies so far.

Merkel wanted to keep everything shut. But some state leaders, responsible for local education policy, resisted and insisted on opening schools and day-cares earlier.

The sluggish pace of inoculations opens the country up to a potential renewed spike. Germany has so far administered about 4.2 doses per 100 people, according to the Bloomberg Vaccine Tracker. That compares with 14 in the US and more than 20 in Britain, though both nations began several weeks earlier.

The scale of the impact of the pandemic on Europe's biggest economy is becoming clearer. The Ifo institute estimated on Wednesday that the restrictions depressed output by half a percentage point in the fourth quarter and will slice about one point off in the first three months of 2021.

"The extension of the lockdown will weigh on the economy, but it's understandable given the concern about a third wave of infections with a mutated virus," Lars Feld, the country's top economic adviser, said in an interview with Funke media.

Industry and construction "remain the backbone of the economic recovery, even in a lockdown extending into March."