Economic output in Germany declined in the first quarter of this year, according to the latest edition of the Bundesbank’s Monthly Report. Many services sectors suffered larger losses than in the previous quarter due to containment measures being tightened and prolonged. There was also temporary pressure on a number of sectors that were not directly affected by the measures, the report states. The return to the higher VAT rates and exceptionally unfavourable weather conditions in January and February dampened activity in the construction sector, for example. In addition, the upturn in industrial output was not sustained in the first two months.

Industry contending with supply bottlenecks

German industrial output saw a renewed decline in February 2021, according to the Monthly Report. “A key factor in this decline is likely to have been bottlenecks in the supply of intermediate products, leading to delays in production despite healthy order books.” The automotive sector was particularly affected, with production seeing a strong month-on-month drop of around 7%. Overall, industrial output held steady at the previous quarter’s level in January and February, meaning that it still remained roughly 3% lower than the pre-crisis level of the final quarter of 2019. The economists do not perceive any further problems with demand, however. Order intake rose significantly again in February and is thus now considerably recovered from the setbacks of the previous year. “Averaged across January and February, it surpassed the pre-crisis level of the fourth quarter of 2019 by an impressive 7%,” the economists write.

Construction output distinctly lower

According to the Monthly Report, construction output fell in the first two months of the year, declining by a considerable 7½% on the fourth-quarter level on average. The decrease was particularly sharp in the finishing trades, where it became clear that some construction work was brought forward in the run-up to the VAT reduction being reversed at the start of the year. In the main construction sector, according to the economists, output slowed at the beginning of the year mainly because of unfavourable weather conditions, but orders received indicate that the downturn in construction should not persist too long.

Significant increase in short-time work

Short-time work for economic reasons increased significantly in January, the Bundesbank writes. According to initial estimates by the Federal Employment Agency, the number of people in short-time work rose to 2.85 million, which equates to 8.5% of all employees subject to social security contributions. The number of short-time workers in January was therefore up by just over 40% compared with October 2020, before the restrictions put in place to contain the pandemic had been tightened again, the report continues. Moreover, the average loss of working hours per short-time worker rose from just over one-third in October to nearly three-fifths recently, which means that the volume of labour lost through short-time work for economic reasons has more than doubled in the last three months up to January (+124%). According to the report, employment remained stable at the start of the year thanks to the increased take-up of short-time work, and the unemployment rate was also unchanged at 6.0%.

Consumer prices continuing to rise

Consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) rose by a seasonally adjusted 0.3% in March and thus just as strongly as in February, according to the Bundesbank. On account of the continuing rise in crude oil prices, consumer prices for energy picked up markedly again. Prices for food and services also went up further. Annual headline HICP inflation rose from 1.6% to 2.0%. After stripping out energy and food, however, it remained virtually constant at 1.6%.