German economy still smaller than pre-pandemic size after omicron reversal

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Germany’s economy went into reverse at the end of 2021, as omicron combined with supply shortages left the industrial powerhouse further away from returning to its pre-Covid size.

The eurozone’s largest economy expanded by 2.7pc over the year as a whole, official figures showed, rebounding only partially from the 4.6pc decline suffered in 2020.

It means GDP for 2021 as a whole was still 2pc lower than it was in 2019 before the pandemic struck.

Official data for the last three months of the year is not published until January but the statistics office said the economy contracted by between 0.5pc and 1pc compared with the third quarter.

Factory output climbed 4.4pc in the year after a 10pc drop in 2020. Business services rebounded by 5.4pc, from a 7.4pc drop. Construction shrank in 2021 after a stronger 2020.

The Government borrowed €153.9bn, up from €145.2bn in 2020 and the second-highest deficit since reunification.

Carsten Brzeski, an ING analyst, said supply shortages have crippled businesses, while omicron is causing new problems with staff sickness.

“No other eurozone country suffered as much as the German economy amid a series of supply chain frictions,” he said.

“Industrial production has basically stagnated since spring last year, despite richly filled order books and very low inventories.”

GDP is thought to have fallen by at least 0.5pc in the final three months of the year, putting the economy behind other advanced nations in the rebound from Covid. The US and UK have already returned to their old size and France was almost there by the end of September.

Andrew Kenningham at Capital Economics predicts the German economy will grow by 3.5pc this year if it can follow the same path as Britain and US.

“Omicron is sure to keep consumer expenditure subdued in the near term even though Germany has not yet suffered infections on the scale seen elsewhere,” he said.

“Meanwhile, there is little evidence that supply problems are easing in Germany and indeed the statistics office said supply bottlenecks would continue for a while.”

Stefan Schilbe, an HSBC economist, said there is still room for growth to snap back, with plenty of demand for goods if companies are able to get their products to market.

“We regard it as highly likely that German industry will recover more strongly, once the bottlenecks ease,” he said.

“The latest order numbers have been strong again, companies have never been more positive regarding the order books and the shelves are empty.” 

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