Status: 01/21/2022 5:36 p.m
The government and economists expect the German economy to grow by a good four percent this year. But the spread of omicron could thwart the forecast. Danger also looms from China.
Germany may be facing a recession. According to experts, the increase in new corona infections of several hundred thousand per day predicted by Health Minister Karl Lauterbach (SPD) could weigh so heavily on the economy that economic output in the first quarter of the new year will fall below the level of the same period last year. Since the German economy is likely to have shrunk by between 0.5 and 1.0 percent in the fourth quarter of 2021, according to an initial estimate by the Federal Statistical Office, Europe’s largest economy would slide into a so-called technical recession. The Federal Statistical Office will present exact figures for the final quarter of 2021 on January 28.
Economists fear that the industry was massively hampered by the massive supply bottlenecks and the lack of skilled workers in the fourth quarter. Production is already around ten percent below the level that could be expected given the good order situation. The Kiel Institute for the World Economy (IfW) has calculated that the large backlog of orders cannot be processed at the moment. The stricter corona rules introduced in the middle of the Christmas business are also likely to have proved to be a burden. The service sector and retail trade in particular have suffered setbacks as a result, so that the strong catching-up process observed over the summer half-year is likely to have stalled.
No crash like at the beginning of the pandemic
And now the rapidly increasing number of infections with the omicron variant is causing concern. “If there are a lot of lost working days, that’s a new stress factor,” said Nils Jannsen, head of the Kiel Institute for the World Economy (IfW), to the Reuters news agency. “This makes a recession more likely.” Deutsche Bank’s Germany chief economist, Stefan Schneider, agrees: “We will see a technical recession.”
However, Schneider does not expect a crash like at the beginning of the 2020 pandemic. “We’ve learned to live with it,” says the expert, who assumes a drop in gross domestic product of around half a percent in the first quarter. Health Minister Lauterbach expects at least 400,000 new corona infections per day in mid-February – in the best case. If the booster shots don’t have a long-term protective effect, the number could even rise to more than 600,000 a day.
Is China bringing world trade to a standstill?
“From an economic point of view, the new infections are less important than the corona restrictions for companies,” says Commerzbank chief economist Jörg Krämer. “We had already assumed that the far-reaching 2G rules would apply in the first quarter.” This again puts a strain on service providers and retailers. The manufacturing industry is likely to suffer from the fact that China is sticking to its zero corona policy and is sealing off entire cities, so that supplies from the People’s Republic for German industry are faltering. “Therefore, I expect that the German gross domestic product will shrink somewhat in the first quarter,” said Kramer.
Experts have been warning for months that the Chinese government’s rigid zero-Covid strategy would bring the country to the limits of its ability to function in the event of a large-scale outbreak of the omicron variant and plunge the economy into catastrophe. Worse still: the lockdown of entire cities with a million inhabitants and their industrial plants could disrupt the entire world trade. Many companies, including German ones like Volkswagen, are already suffering from the corona-related production stops. “There is much to suggest that China is throwing international trade, which has only just recovered slightly, completely off course,” fears Klaus-Jürgen Gern, world economics expert at the IfW. Germany, as China’s largest trading partner in Europe, is likely to be hit particularly hard.
easing in the EU
Meanwhile, hope comes from Germany’s neighbors. The omicron wave started earlier there and has in some cases already exceeded its peak. In France, for example, the daily number of new infections has fallen below the threshold of 500,000 a day. The government has now announced easing – with incidences of over 3000 – because the omicron variant is no more dangerous than flu and over 90 percent of the population has been vaccinated at least twice. The restrictions were also recently relaxed in Belgium and the Netherlands, so that the economy there can pick up speed again. Of course, the export-oriented German economy also benefits from this.
Nevertheless, some economists now consider it unlikely that the German economy will grow by more than four percent this year, as the federal government and the Bundesbank expect. The World Economic Institute (HWWI), which belongs to the Hamburg Chamber of Commerce, expects economic growth of 3.5 percent this year and 2.5 percent for 2023. In 2020, gross domestic product collapsed by 4.6 percent, last year it had increased by 2.7 percent. This number also fell far short of expectations. Economists had originally expected an increase of around four percent, the federal government had assumed 3.5 percent.