The German economy is likely to contract sharply this quarter due to the impact of pandemic restrictions on the service sector and even a slowdown in the burgeoning economy. construction industry, the Bundesbank said on Monday.
In its latest monthly report, the German central bank appeared to abandon its expectations of a rebound in the spring and dropped references to the vaccination campaign, which has been plagued by delivery delays and news reports on potential side effects, such as catalyst.
“Measures to contain the pandemic are stricter on average in the current quarter than in the previous one,” the Bundesbank said. “Therefore, economic output in the first quarter of 2021 is likely to decline dramatically … especially in contact-intensive service sectors.”
He added that a sales tax increase, which was temporarily cut last year, is likely to have contributed to a substantial decline in construction in January.
Industrial production also declined in the first month of the year, but order intake was strong and exports of goods increased, the Bundesbank added.
Exports of goods to the UK were the exception, however, falling by almost a quarter in January, the first month after it left the European Union single market.
The Bundesbank had said in last month’s report that the economy would recover in the spring as coronavirus infections fell and vaccines were distributed.