The risk of recession is looming for Germany after the contraction of its economy at the end of 2021. Particularly affected by supply problems, it is doing less well than Spain, France and Italy.
Germany’s gross domestic product (GDP) fell from 0.5% to 1% in the fourth quarter, according to temporary figures announced on January 14 by the national statistics agency Destatis. The outlook is also negative for the first three months of 2022, and two consecutive quarters of decline would officially put Germany into recession.
Germany is widely regarded as the engine of the euro area. However, many German companies have suppliers or factories in other European countries, so that the business activity of Germany can stimulate or slow down the growth of its neighbors. In 2021, German GDP only rebounded by 2.7%, after falling 4.6% in 2020, at the height of the pandemic.
Economic activity in Germany remains below its pre-pandemic level and growth in 2021 has lagged behind the estimated average of 5% in the euro area. Its activity was less dynamic than what is observed in the other large economies of the zone such as France, Spain and Italy.
The German economy, largely reliant on industrial production and exports, has been particularly affected by component and raw material shortages, which have prevented companies from meeting strong customer demand as a rebound was expected, once the peak of the pandemic had passed.
Carsten Brzeski, head of economics at the Dutch bank ING, quoted by the Associated Press agency explains: “No other country in the euro zone has suffered as much from breaks in the supply chain as the German economy in the midst of a series of supply chain friction. ” The economist observed a virtual stagnation in industrial production compared to spring 2020, despite well-filled order books and very low stocks.
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