German economy shrank 1.7% in first quarter

Germany's statistics  agency says the coronavirus crisis "caused another decline in economic performance at the beginning of 2021", hitting household consumption in particular.
Germany’s statistics agency says the coronavirus crisis “caused another decline in economic performance at the beginning of 2021”, hitting household consumption in particular. Tobias Schwarz AFP/File
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Frankfurt (AFP)

Germany’s economy shrank 1.7 percent in the first quarter of 2021 as rising coronavirus infections forced shutdowns to be extended, worse figures than elsewhere in Europe, official data showed Friday.

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“The coronavirus crisis caused another decline in economic performance at the beginning of 2021,” the Destatis federal statistics agency said.

“This affected household consumption in particular, while exports of goods supported the economy.”

Analysts surveyed by Factset had expected a smaller contraction of 1.5 percent.

The weak start to the year in Europe’s largest economy stands in stark contrast with the 0.5 percent expansion in gross domestic product (GDP) recorded in the fourth quarter of 2020, before more contagious virus variants upended Germany’s bounce-back.

Germany’s performance was also worse than the first-quarter data coming out of other large European economies on Tuesday.

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France announced a return to growth over the January to March period at 0.4 percent, while Italy suffered a contraction of 0.4 percent and Spain fell 0.5 percent.

Germany’s woes come as the country remains gripped by a third coronavirus wave that has pummelled the services sector, with restaurants, hotels and leisure centres all feeling the pain from prolonged closures.

The picture is brighter in the crucial industrial sector, with Germany’s export-oriented car manufacturers and machine makers among those benefitting from faster recoveries in key markets such as China.

Germany is also optimistic that vaccination progress and a gradual relaxation of restrictions will fuel a swift rebound from the middle of the second quarter.

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More than 25 percent of Germans have now had their first Covid jab, and the country this week hit a record of vaccinating more than one million people in a single day, becoming the first European country to do so.

Economy Minister Peter Altmaier on Tuesday lifted Germany’s full-year forecast and said he now expected 3.5 percent growth in 2021, up from an earlier estimate of 3.0 percent.

“This is the year when we will really see a trend reversal,” he said.

The recovery is expected to extend to 2022, with growth of 3.6 percent for next year, according to government forecasts