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

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The German economy reversed at the end of 2021 as the omicron combined with supply shortages pushed the industrial powerhouse away from returning to its pre-Covid size.

The eurozone’s biggest economy grew 2.7% for the year as a whole, official figures show, only partially rebounding from the 4.6% decline suffered in 2020.

That means GDP for 2021 as a whole was still 2% lower than it was in 2019 before the pandemic hit.

Official data for the last three months of the year is not released until January, but the statistics office said the economy contracted 0.5-1pc from the third quarter.

Factory output climbed 4.4% on the year after falling 10% in 2020. Business services rebounded 5.4%, after falling 7.4%. Construction declined in 2021 after a stronger 2020.

The government borrowed 153.9 billion euros, compared to 145.2 billion euros 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 illness.

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

“Industrial production has virtually stagnated since the spring of last year, despite well-filled order books and very low inventories.”

GDP is believed to have fallen by at least 0.5% in the last three months of the year, putting the economy behind other advanced nations in the Covid rebound. The United States and the United Kingdom have already returned to their former size and France was almost there at the end of September.

Capital Economics’ Andrew Kenningham predicts Germany’s economy will grow 3.5% this year if it can keep pace with Britain and the United States.

“Omicron is confident of keeping consumer spending subdued in the near term, even though Germany has yet to suffer 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 will persist for some time.”

Stefan Schlibe, an economist at HSBC, said there was still room for growth to pick up, with strong demand for goods if companies are able to get their products to market.

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

“Latest order numbers have been strong again, businesses have never been more positive about order books and the shelves are empty.”

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