German GDP slumps but optimism up as vaccinations increase

Germany’s economy contracted more than expected in the first quarter amid coronavirus lockdown measures, according to statistics released Tuesday, but a leading indicator showed that businesses’ optimism is rising as the pace of vaccinations increases.

The Federal Statistical Office said that the first quarter gross domestic product in Germany, Europe’s largest economy, dropped by 1.8% over the fourth quarter of 2020, according to figures adjusted for price, seasonal and calendar factors. The office’s preliminary estimate had been a drop of 1.7%.

GDP was down 3.4% over the same quarter last year, when the pandemic was just starting to take hold, according to price adjusted figures, and 3.1% when adjusted for both price and calendar factors.

Many facets of the economy were shut down in the first quarter of 2021 as Germany grappled with rising coronavirus infection figures.

The country has recently been gradually moving to open up more areas of public life, however, as the latest wave of virus infections subsides and its vaccination campaign gathers pace.

According to the closely-watched monthly survey from Munich’s Ifo institute, sentiment among German managers has followed with a considerable improvement.

The agency’s index of business climate rose to 99.2 points in May from 96.6 points in April, its highest value since May 2019.

According to its sub indices, companies were more satisfied with their current business situations as well as more optimistic for the coming months, Ifo said.

“The finally accelerating vaccination rollout, as well as first steps in the reopening of the economy, have clearly boosted optimism,” ING economist Carsten Brzeski said.

He cautioned that new variants of the coronavirus could cause a setback, and that supply chain disruptions could harm the manufacturing sector, but that the “general outlook for the German economy is improving.”

“We expect private consumption and the construction sector to be the main drivers of growth in the second quarter,” he said.

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