German economic output could grow again significantly in the second quarter of 2021, according to the Bundesbank’s Monthly Report. “As soon as the measures to protect against the coronavirus are successively loosened, activity in the affected services sectors should pick up again considerably.” The industrial sector is reportedly benefiting from strong demand, even though production will probably continue to be subdued in the near future owing to bottlenecks in the supply of intermediate goods. The Bank’s economists expect private consumption, too, to partially recover in the second quarter of 2021 from its exceptional decline. The results of the Bundesbank Online Panel Households from March 2021 indicate that consumers will take consumption opportunities that were previously closed as soon as they reopen. “As in the third quarter of 2020, private consumption is therefore likely to recover swiftly once restrictions are rolled back on a large-scale and permanent basis,” the Bundesbank reports. In the medium term, some of the savings accumulated involuntarily during the coronavirus pandemic are likely to be reduced, then fuelling private consumption further.

According to ifo Institute surveys, business expectations in April exceeded the first-quarter average in almost all sectors. Rapid progress in the vaccination campaign could see GDP grow strongly in the third quarter and exceed its pre-crisis level as early as the fourth quarter, write the Bundesbank economists.

Major setback for the economy in the first quarter

Economic output in Germany fell strongly in the first quarter of 2021, the Monthly Report states. According to the Federal Statistical Office’s flash estimate, real gross domestic product (GDP) was 1.7% down on the quarter after seasonal and calendar adjustment. “This meant that economic activity again fell short of the pre-crisis level of the fourth quarter of 2019 by almost 5%,” the Bundesbank reports. The sharp setback can be attributed in large part to the stricter and more prolonged measures to protect against coronavirus. In particular, this hit a number of services sectors hard. However, industrial output stagnated, too, despite a further increase in demand, with bottlenecks in the supply of intermediate goods a factor. Construction output even declined, with the return of the VAT rates to their higher levels at the start of the year and the unfavourable weather conditions in January and February also playing a role in this.

Private consumption suffered considerably from second wave

The Bundesbank economists write that private consumption probably declined strongly in the first quarter. The even stricter and more prolonged coronavirus mitigation measures led to strong sales drops, particularly in the hotel and restaurant sector. Bricks-and-mortar retail outlets were also hit hard by the measures, despite initial relaxations in March. Sales of textiles, clothing and footwear were down dramatically on the quarter, and sales of furniture, household appliances, home improvement materials as well as information and communication technology devices also experienced a slump. By contrast, there was a large increase in food sales as well as online and mail order shopping. Moreover, according to the Bundesbank, German enterprises continued to benefit from dynamic foreign demand and significantly increased their exports.

Major increase in short-time work up to February

According to the report, the labour market responded robustly to the prolonged mitigation measures in the first quarter. “Both employment and unemployment held nearly steady at the level of the fourth quarter of last year.” The decline in economic activity was cushioned by the substantial increase in short-time work. According to initial estimates by the Federal Employment Agency, in February almost one in ten employees subject to social contributions (3.27 million) received short-time working benefits to compensate for economic difficulties. Compared with the lowest point after the recovery, October 2020, the number of persons affected thus rose again by more than three-fifths. The volume of labour lost through short-time work saw an even larger increase (+164%), because the average working hours lost per short-time worker also went up sharply. This was due to closures in the wholesale and retail trade, hotel and restaurant services, and other services including arts, entertainment and recreation.