“The pandemic left a deep mark on German economic output in 2020 as a whole,” the Bundesbank writes. According to preliminary calculations by the Federal Statistical Office, real GDP fell by around 5.0% (calendar-adjusted: 5.3%) on the year. “The decline almost reached the magnitude of that recorded in 2009, when economic output fell by 5.7% in the wake of the global financial and economic crisis.” It was particularly contact-intensive services, such as hotel and restaurant services and parts of the bricks-and-mortar retail trade sector, which were affected by the economic slump. However, industry likewise took a major hit.

No notable setback in final quarter of 2020

According to the current issue of the Monthly Report, in the last quarter of 2020 Germany's economic recovery was throttled by the higher infection rates and considerably stricter measures introduced again to contain the pandemic. However, according to the Bundesbank's experts, no major setback occurred as those sectors less strongly affected by the measures continued to recover. According to figures available up to November, industry in particular, but also construction, experienced strong growth. Industrial orders in November were even significantly above their pre-crisis level of the final quarter of 2019. In addition, retail sales grew considerably up to November. This counterbalanced the losses likely to have been incurred as a result of the mandatory closing of brick-and-mortar stores in December.

According to the ifo business climate index, corporate sentiment brightened in December despite the resurgence of the pandemic. These encouraging signals suggest that the restrictions extended and tightened even further at the beginning of the new year may well not prove too much of a setback for the economic recovery. If, however, the infection rates do not diminish significantly and the current restrictions on economic activity persist for a longer period or get tightened even further, a distinct setback might nevertheless still occur.

Unemployment down throughout reporting period

According to the Monthly Report, “The labour market remained remarkably stable despite the renewed tightening of measures to combat the pandemic”. Although there were more registrations for short-time work in November and December, they represented only a fraction of the notifications filed last spring. The current notifications were mainly limited to the hotel and restaurant area and parts of the retail sector affected by mandatory closures. Registered unemployment declined distinctly in December, as it had done in the two preceding months, write the experts. The unemployment figure was 37,000 lower than in the previous month after seasonal adjustment, putting the unemployment rate at 6.1%.

Inflation down significantly on an average of 2020

According to the report, on the basis of preliminary data, consumer prices rose slightly in December for the first time since the second quarter in seasonally adjusted terms. The experts attribute this to the marked rise in energy prices. On an annual average of 2020, headline inflation is likely to have declined from +1.4% to +0.4% owing to the collapse in crude oil prices and the temporary reduction in VAT rates. Core inflation excluding energy and food was probably +0.7% after likewise standing at +1.4% in 2019. “Inflation is likely to be clearly positive again in January 2021,” according to the report. This will be due to the introduction of carbon emission permits for the consumption of refined petroleum products and gas and the expiry of the VAT rate cut.