According to the current issue of the Bundesbank’s Monthly Report, there is likely to be a steep fall in German economic output in the first quarter of 2021. In particular, activity in services sectors with high frequencies of interpersonal contact will probably have declined again sharply. For instance, retail sales were down considerably in January. The economists assume that the higher value added tax since the beginning of the year is also likely to have been a factor, alongside the pandemic containment measures.

Industry profits from dynamic foreign demand

German industrial output declined somewhat overall in January, reports the Bundesbank. This was due mainly to the automotive sector, where supply shortages for semiconductors put the brakes on output. In January, industrial output was thus still markedly below the pre-crisis level of the final quarter of 2019. Sentiment improved in February, however, according to surveys by the ifo Institute. Furthermore, industrial enterprises saw a significant month-on-month rise in orders in January (+1½%). Demand from non-euro area countries provided a particular boost for German industrial enterprises. On the other hand, orders from the euro area remained unchanged and domestic demand even declined. “Overall, new orders were significantly above the pre-crisis level of the final quarter of 2019 (+6%)”, the report states.

Continued growth in exports of goods

According to the Bundesbank, seasonally adjusted nominal exports of goods recorded a clear increase (+1½%) in January 2021 compared with the previous month. They were up by as much as 2¼% on the average of the previous quarter, with exports to both non-euro area countries and to euro area countries rising fairly steeply. The Bank’s economists note that with the ending of the transitional period ensuring reciprocal market access under EU Single Market rules, exports to the United Kingdom fell by almost one-quarter, but this was more than offset by strong growth in exports to other countries.

Short-time work rises again at end of year

The labour market has remained very stable in spite of the persisting restrictions to contain the pandemic, write the experts. This is partly attributable to the fact that greater use was again made of short-time work for economic reasons. According to the latest estimate by the Federal Employment Agency, just under 2.4 million employees subject to social security contributions were in short-time work in December, almost one-fifth more than in October. The number of short-time workers could have risen again slightly at the beginning of the year. In any case, the number of notifications of short-time work remained relatively high.

Clear rise in consumer prices

Consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) increased in February by a seasonally adjusted 0.3% on the month. Higher energy prices were one of the driving factors behind this. Prices of crude oil were up by more than 13% on the month, partly owing to production cutbacks and stoppages. Moreover, prices for some food products rose so substantially that the cost of food went up significantly as a whole. As in January, consumer prices climbed by 1.6% compared with the previous year.