The German economy in the first half of 2021

The German economy in the first half of 2021

February 26, 2021

Light at the end of the tunnel?

The coronavirus pandemic has left deep scars on the economy and society at large. Eleven million applications for short-time work were filed in Germany between February and May 2020 alone. Thousands of retailers are at risk of insolvency due to the lockdown measures. And the German government has promised support worth as much as 40 percent of Germany's national output. Nevertheless, the second quarter of 2020 saw an unprecedented slump in economic activity amounting to -11.3 percent year on year. The economy then made a marked recovery in the third quarter, only to be curbed once again by the second lockdown starting in November. According to the latest estimates, Germany's Federal Statistical Office expects GDP to contract by 5 percent in 2020 as a whole.

Almost all sectors of the economy were hit by the recession in 2020. Only construction recorded a year-on-year increase in gross value added of 1.4 percent. In the manufacturing sector, gross value added fell by almost 10 percent in 2020 compared with 2019. This decline in GVA in manufacturing is also reflected in the massive drop in capacity utilization seen at the beginning of the second quarter of 2020. The disruption of global supply chains for both raw materials and intermediate products caused production in the automotive industry in particular to plummet. Thanks to rising order intake from mid-year onwards, capacity utilization is on the up in all sectors and now stands at just below the prior-year level overall.

Measures taken to control the pandemic since the end of 2020 are dampening the upswing in the German economy. It is difficult to assess how the pandemic will evolve from here on in, given the new virus mutations and the declining acceptance of health protection measures among the population at large. The ramping up of the vaccination campaign and the prospect of increased vaccine supplies in the second quarter of 2021 offer hope. In addition, considerable pent-up demand for leisure activities and consumption is expected to materialize, which can be satisfied with the substantial savings many people made in 2020. Moreover, exports are benefiting from the strength of China's economy. At the same time, numerous insolvencies are anticipated in 2021, particularly among companies in the hard-hit sectors of tourism, aviation, hotels and restaurants.

The high level of uncertainty over how the pandemic will play out is also reflected in the fact that the German government is constantly adjusting its economic forecasts to reflect current events. In the spring of 2020, experts were still anticipating a solid economic recovery and GDP growth of 5.2 percent in 2021. The autumn forecast estimated growth of 4.4 percent in 2021, while currently the German government is expecting economic growth of just 3 percent for this year.

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The German economy in the first half of 2021


The study analyzes Germany's economic development in 2020 and provides an outlook for the coming months.

Published February 2021. Available in
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