German Bundesbank Says German Economy Probably Contracted ‘Somewhat’ in 4Q
24 January 2022
By David Barwick – FRANKFURT (Econostream) – The German economy probably contracted in the last quarter, though the drop would not have been precipitous, the German Bundesbank indicated on Monday in its latest monthly report.
German GDP ‘is likely to have fallen somewhat in the final quarter of 2021’, the German central bank wrote. ‘The main reason for this is the renewed increase in pandemic activity’, the consequences of which ‘have in part significantly burdened economic activity in the service sector, especially in December.’
Nevertheless, in the first two months of the quarter, real retail sales were still a bit up on the quarter, and the decrease in the hospitality sector was only moderate, it said. Industry and construction probably contributed to 4Q growth positively, it said.
With its December prediction of a 4Q decline of economic output, the Bundesbank had already noted that the drop would probably be less severe than a year previously, citing less stringent pandemic containment measures and the shorter period of the quarter affected.
‘On the labour market, the comparatively favourable development in employment and unemployment continued until the end, despite the worsening of the infection situation’, the Bundesbank said today. ‘The employment trend was particularly favourable for jobs subject to social security contributions. In October, they increased just as strongly as total employment.’
The manufacturing sector however is showing ‘no signs of recovery so far’, it said.
Leading indicators suggest that for the moment, employment will increase less strongly, the Bundesbank said, citing employment barometers of Ifo Institute and the Institute for Employment Research (IAB). Unemployment could show a minor increase over the next months, despite ‘a fundamentally strong demand for labour in Germany’, it said.
Inflation was ‘likely to remain extraordinarily high’ at the start of the current year, despite the washing out of some special effects, the German central bank said. ‘[D]ue to the significant increase in market prices for natural gas, the corresponding end customer tariffs will be raised substantially.’