- Last year, the outbreak of the coronavirus pandemic sent the German economy into a severe recession not unlike the economic and financial crisis of 2008 and 2009. Over the year, gross domestic product fell by 5.0%. 
- After a strong recovery of 8.5% in the third quarter of 2020, the partial lockdown which was imposed in November and subsequently tightened and extended is likely to have caused the in the last quarter of the year.
- Despite the partial lockdown, continued to grow in November, as did new manufacturing orders. This suggests that the industrial sector has not been as badly hit by the measures as it was last spring.
- Retail turnover (excluding cars) continued to grow in November, although sector-specific developments differed greatly from one another. While online and mail-order trade registered a strong increase in turnover, fixed-site retail outlets suffered particularly from measures taken in response to the pandemic. Although leading indicators in December did not take full account of the tightening of the lockdown, they already painted a gloomier picture. The number of monthly new car registrations by private households reached the mark of 135,000 (seasonally adjusted) in December, well above the monthly average for 2018 and 2019.
- Despite the partial lockdown, the development of the labour market was stable. Gainful activity registered only a slight decline in November. Likewise, seasonally adjusted figures for unemployment continued to decline appreciably in December. Meanwhile, registrations for short-time work in November and December point to a rise in the number of people in short-time work.
ECONOMIC RECOVERY INTERRUPTED DUE TO NEW LOCKDOWN
After ten years of continuous economic growth, the coronavirus pandemic caused GDP to decline by 5.0% overall in 2020. However, the decrease turned out to be not nearly as dramatic as many experts had been predicting over the course of the year. This is due to the resilience of the German economy, but also to the comprehensive packages of measures adopted by the Federal Government to support the economy and stabilise incomes. After the second quarter had recorded a historic slump of 9.8%, a remarkable process of recovery set in as restrictions were gradually lifted. In the third quarter, German economic output grew by 8.5%, reaching approximately 96% of the level posted in Q4 2019 before the outbreak of the pandemic. Although the recovery went on to lose momentum, economic output figures continued to predominantly record increases through November. The new lockdown, however, is likely to have caused GDP to stagnate in the fourth quarter.
The latest figures are indicative of a two-pronged economic development: while the services sector is once again being more heavily impacted by the restrictions on social contacts, the industrial sector continues to experience robust development. Despite the partial lockdown, new manufacturing orders and industrial output continued to grow in November, as did trade in goods. Notwithstanding the uncertainty over the conclusion of a Brexit agreement between the EU and the United Kingdom – still pending at the time of the surveys –, business and export expectations in the manufacturing sector brightened further in December. Also, the labour market has so far demonstrated considerable resilience. Employment has increased overall in recent months, with unemployment continuing to decline. The latest figures, however, point to yet another rise in short-time work.
THE GLOBAL ECONOMY UNDER THE SHADOW OF THE PANDEMIC
The world economy is continuing to recover, but the sentiment indicators are pointing to a slowdown in the recovery process. Global industrial output expanded for the sixth consecutive month in October, growing by 0.7% and thus reaching more than 99% of the figure for the preceding year. World trade, which saw a further 0.7% increase in October, also came close to reaching its pre-year level (almost 99%). However, sentiment indicators suggest that the global recovery process has started to slow down. For instance, the combined J.P. Morgan / IHS Markit purchasing managers’ index continued to fall in December, but, at 52.7 points, remained above the growth threshold of 50 points. The sub-index for the industrial sector is looking much more positive than the one for services. The way in which the pandemic is unfolding and the lockdown measures imposed in many countries are likely to have played a role in this, as these measures are primarily affecting services.
CONTINUED RECOVERY IN FOREIGN TRADE
In November, exports of goods and services continued and in fact picked up speed on the road to recovery. The value of these exports grew by 1.9% over the preceding month (in nominal terms and adjusted for season), a seventh consecutive rise. In the two-month comparison of October/November versus August/September, a 2.9% increase was recorded. Imports of goods and services rose markedly between October and November (+2.4%), with the two-month comparison showing an increase of 1.3%.
The accelerated pandemic development and the lockdown measures imposed by important are only partly mirrored in the national leading indicators on and investment. After the ifo export expectations of the manufacturing sector for the coming three months had worsened considerably in November, they became positive on balance again in December. The volume of new orders from abroad continued the upward trend begun in May, growing by +2.9% in November. The prospects for Germany’s foreign trade are weakened by the measures being taken in response to the pandemic. It remains to be seen, however, to what extent these measures, which are primarily targeting the services sector, will also affect industry going forward.
INDUSTRY LESS HIT BY NEW LOCKDOWN MEASURES
Output in the goods-producing industry continued to record a slight increase in November. It grew by 0.9% compared to the preceding month. The increase for October had been adjusted slightly upwards to 3.4%. Both industry and the construction sector were able to increase their output (by 1.2% and 1.4% respectively) in November, while the energy sector recorded a considerable decrease of 3.9% in the wake of the partial lockdown. Within industry, the most significant growth contributions were generated by the automotive sector (+2.2%), IT and optical devices (+6.7%), and mechanical engineering (+1.8%). In the two-month comparison of October/November versus August/September, the output of the goods-producing industry registered a 5.0% increase. During the same period, the industrial sector and construction posted growth rates of 5.4% and 3.4% respectively. Also, the energy sector witnessed a 4.3% increase in output.
New orders in the manufacturing sector continued the steady process of recovery begun in May 2020, growing by another 2.3% in November. In the two-month comparison, an increase of 4.9% was recorded. While orders from the eurozone rose only slightly by 0.3%, domestic orders and orders from the non-eurozone increased by 5.2% and 7.5% respectively. The overall volume of new orders in November exceeded the level reached in the last quarter before the crisis, Q4 2019, by almost 6½%.
The goods-producing industry is continuing to work itself out of the crisis. According to the latest figures, industrial output exceeded 97% of the level reached in Q4 2019. In view of ongoing pandemic activity and the tightening and extension of the lockdown, the outlook for industry remains restrained. Ordering activity, however, continues to enjoy stable levels. The development in industry suggests that the sector is being less heavily impacted by the lockdown measures than it was in the spring.
RETAIL TURNOVER IS INCREASING
According to estimates by the Federal Statistical Office, retail turnover (excluding cars) rose by roughly 4% last year. However, sector-specific developments varied considerably. In November, turnover grew by 1.1% compared to the preceding month, following a 2.8% increase in October. This positive trend was accounted for by the strong turnover increase in online and mail-order trade, while fixed-site retail outlets, particularly apparel outlets, suffered from the measures imposed in response to the pandemic. After a 0.3% decline in September, retail trade including cars rose by 1.1% in October, reaching a level that was well (more than 6%) above the value it had recorded in Q4 2019 before the outbreak of the coronavirus pandemic. Private new car registrations rose by 14.5% in December (November: +14.0%). The number of private new car registrations (adjusted for seasonal factors) exceeded 135,000 cars per month, which is well above the monthly averages for 2018 and 2019. Given the lower VAT rate that applied until the end of the year, the fact that some purchases will have been brought forward is likely to have played a role here.
The ifo figures for business expectations in the retail sector dipped in December. For January, the GfK consumer climate index predicted a further slight decline. The two indicators did not yet reflect the current development in infections nor the extension and tightening of the new hard lockdown.
After falling by 0.8% in November, consumer prices went on to rise by 0.5% in December, reflecting a trend that is typical of the Christmas season. The rate of inflation, i.e. the year-on-year development of the price level, remained at -0.3% in December, which is due not least to the reduction of VAT rates in the middle of the year. It is the lowest inflation rate to be recorded since January 2015. Prices for energy products and for goods fell by 6.0% and 1.8% respectively, while prices for services increased by 1.1%. The core inflation rate (excluding energy and foodstuffs) dropped by 0.2 percentage points to +0.3% in December. As an overall average, the inflation rate was 0.5% in 2020, the lowest to be recorded since the global financial crisis in 2009. While prices for energy products and for goods dropped by 4.8% and 0.4% respectively, prices for services showed a 1.3% increase.
LABOUR MARKET REMAINS ROBUST IN SPITE OF PARTIAL LOCKDOWN – BUT SHORT-TIME WORK IS EXPECTED TO INCREASE
The latest figures suggest that the labour market remains stable. Since the summer of 2020, there has been a slight rise in employment. Unemployment and underemployment have been decreasing, and the level of short-time work has also tended to fall. However, the latter began to rise again after the partial lockdown was imposed. The level of gainful activity (seasonally adjusted), which had seen a continuous increase for four consecutive months, decreased slightly by 3,000 persons in November. Demand for labour remained moderate. In October, the number of jobs subject to social insurance contributions (seasonally adjusted) rose markedly by 59,000. The number of employees in short-time work stood at 2.0 million in October, down from 2.3 million in September. However, registrations for short-time work in November and December (628,000 and 666,000 respectively) point to an upward trend towards the end of the year. Registered unemployment dropped noticeably by 37,000 in seasonally adjusted terms in December. According to the unadjusted figures, unemployment rose slightly to 2.71 million people. Since the summer, the year-on-year change had lowered by almost 160,000 to a figure of +480,000 people. The survey-based leading indicators by the Institute for Employment Research and the ifo Institute showed divergent trends in December.
 Press release by the Federal Statistical Office of 14 January 2021.