Growth curve with pen symbolizes the economic situation; source:


  • In the final quarter of 2020, the new lockdown caused a stagnation in the German economy.[1] GDP increased only slightly, rising by 0.1%. Output in 2020 contracted by 5.0% due to the pandemic.
  • Despite tightened lockdown restrictions, industrial output continued to pick up in December, with only the construction sector seeing a decline. The number of new manufacturing orders is well above pre-crisis levels. This suggests that the industrial sector continues to be less affected by the measures compared with spring.
  • Retail trade was dealt a considerable blow by the tightened lockdown rules, leaving Christmas sales severely affected. Turnover (excluding motorised vehicles) declined sharply, although development across the sector varied widely. Fixed-site retail outlets suffered from the measures to combat the pandemic, whilst e-commerce and mail order services achieved strong growth compared with the previous year.
  • The labour market has continued to remain stable despite the lockdown. Gainful employment (adjusted for seasonal variations) saw a slight increase in December, with unemployment rates once again declining sharply in January. The number of registrations for short-time work received in January and December suggests that the number of people in short-time work could see a further slight increase.

The lockdown meant that the economy grew only slowly in the final quarter of 2020

GDP (adjusted for price, calendar day and seasonal variations) in the the fourth quarter of 2020 virtually stagnated (+0.1%) compared with the third quarter, where an impressive increase of 8.5% had been registered. The swift recovery that had followed the first lockdown of spring last year nearly came to a halt during the second lockdown. The extension and tightening of coronavirus-related measures continues to impact the German economy in the first quarter of this year. Going forward, economic development will very much depend on how fast the spread of infections can be contained once again following the rise in the winter. It is clear that there will be no sustainable recovery unless the coronavirus pandemic is effectively contained. This is even more true considering the spread of new coronavirus strains that are more contagious and increase the risk of infection.

The economic recovery was dampened in the fourth quarter of 2020 by a second wave of the pandemic and the measures subsequently undertaken to combat it. Private consumption is likely to have been hardest hit by social distancing restrictions. From the middle of December, the tightened measures affected not only the hospitality sector, arts and entertainment, which had been restricted since November, but also fixed-site retail outlets. These restrictions have continued during the first two months of 2021. However, exports in goods and the construction sector are likely to have propped up economic development. There continue to be two sides to economic development. Whilst the development in the industrial sector continues to be robust, the services sector is more severely affected by the measures to combat the spread of the pandemic. The labour market continues to be stable. Gainful employment has increased slightly since the summer and unemployment has once again started to fall. Demand for the short-time work scheme is likely to rise once again due to the second lockdown, but will probably remain lower than in spring of last year.

Global economic development pointing upwards

The global economy continues to recover, but sentiment indicators suggest the recovery process will slow. Global industrial output increased in November for the seventh consecutive month, rising by 1.1%, thus for the first time surpassing pre-crisis levels. Global trade also reached this important mark, growing by a remarkable 2.1% in November. However, sentiment indicators at present continue to suggest that the recovery of the global economy will slow. The combined J.P. Morgan / IHS Markit purchasing managers’ index saw another decline in January, falling to 52.3 points. However, the index remains above the growth threshold of 50 points. The indicators also reflected the variations in development between sectors, with sentiment being much brighter for the industrial sector than for services. This is probably due to the fact that the lockdown restrictions are primarily felt by the services sector.

Almost no change in foreign trade at the end of the year

German foreign trade saw strong growth in the previous months and continued to grow in December, albeit at a slightly slower rate. The value of the goods and services exported rose by 0.7%, both adjusted for seasonal variations and nominally. This adds up to a 4.7% increase quarter on quarter. Imports saw a 0.4% drop in December compared to the previous month. However, substantial growth in the previous months meant that imports still increased by 2.8% quarter on quarter.

At national level, the lockdown is virtually no longer reflected by the leading indicators on foreign trade as these are primarily driven by the industrial sector. Ifo’s export expectations for the manufacturing sector improved noticeably in January, reaching almost the same level as in October. December saw a drop in new orders from abroad (-2.6%), offsetting the strong November rise (+2.9%). With the industrial sector being less affected by the lockdown, the outlook for German foreign trade remains moderately positive.

Industry continues to be less affected by new lockdown

Manufacturing output flatlined in December. Output remained at 0.0% compared with the previous month. Output in the industrial sector grew by another 0.9%, whilst construction output fell by 3.2%. However, construction output was still considerably above pre-coronavirus crisis levels (up 2.1% from the fourth quarter of 2019). Growth in manufacturing in November was revised upwards to 1.5%. The quarterly comparison shows a marked increase of 6.1% in manufacturing output. Industrial output increased by 6.8%, with the important automotive sector growing even by a massive 14.4%. In the construction and the energy industries, output rose by 4.0% and 4.5% respectively.

New manufacturing orders were unable to continue their upward trend in December, falling by 1.9% for the first time since May 2020. Demand for investment goods declined by 4.6%, whilst demand for consumer and intermediate goods increased by 6.4% and 0.8% respectively. Orders – excluding large orders – dropped almost just as much (-2.0%). The number of orders placed increased by 7.0% between the third and fourth quarter. Even though the total number of new manufacturing orders saw a slight decrease, they were still almost 5% above pre-pandemic levels in the fourth quarter of 2019.

However, due to the pandemic situation and bottlenecks in supply in the semiconductor industry, the outlook for the development of the industrial sector remains restrained. This is also reflected by the recent weakening in orders, not least in the high-volume automotive sector and other parts of vehicle construction, and by a more general trend towards restrained confidence among companies.

Retail trade hard hit by continued lockdown

Retail sales – excluding sales of motorised vehicles – fell considerably towards the turn of the year, with measures for combatting the spread of infections heavily affecting Christmas sales. In December, turnover fell by 9.6% compared with the preceding month, following a 1.1% increase in November. However, development varied considerably. Whilst fixed-site retail outlets, particularly fashion outlets, were substantially affected by social distancing restrictions, e-commerce and mail order services saw considerable growth compared with the previous year. In November, trade including motorised vehicles grew by 0.7% compared with the preceding month, following a 1.3% increase in October. Private new car registrations fell by more than 50% in January, following increases in December and November of 15.0% and 14.0% respectively. This development is probably due to a large extent to the temporary reduction of VAT, which no longer applied from 1 January 2021.

Ifo’s business expectations for retail trade saw a massive deterioration in January. The GfK consumer climate index expects figures to show a further noticeable decline in February. The two leading indicators now reflect the impact of the measures to combat the spread of infections.

The termination of the temporary reduction of VAT rates has also played a key role for the development of consumer prices at the beginning of 2021, with prices rising by 0.8% compared with the preceding month. The inflation rate, the year-on-year development of prices, last stood at 1.0%, turning positive for the first time since June last year. Food prices rose by 2.2%. In contrast to this, prices for energy products fell by 2.3%, but not as much as in the preceding months (-7.7% in November, -6.0% in December). The core inflation rate (without energy and food) increased by 1.0 percentage points, reaching +1.4%.

Labour market continues to be stable – demand for short-time work likely to increase during the lockdown

The labour market continues to be robust. Employment continued on its slight upward trend, which started in summer. Figures for unemployment and underemployment (adjusted for seasonal variations) continued to fall. However, short-time work is seeing another rise during this lockdown. In December, gainful employment increased slightly in seasonally adjusted terms, rising by 10,000 persons. However, demand for labour remained restrained. In November, the number of jobs subject to social insurance contributions (seasonally adjusted) rose markedly by 57,000. According to the projections, the number of employees in short-time work increased in November (2.3 million compared with 2.1 million in October). The number of registrations for short-time work made in January and December (745,000 registrations received by 25 January for 781,000 persons) indicates another rise in short-time work during the current lockdown. However, the number of employees in short-time work should remain well below Spring 2020 levels. Registered unemployment dropped noticeably by 41,000 in seasonally adjusted terms in January. According to the unadjusted figures, unemployment rose slightly to 2.90 million people. Year-on-year, the gap has lowered to +475,000 people. The survey-based leading indicators by the Institute for Employment Research and the ifo Institute developed less strongly in January due to the lockdown.
[1] Press release by the Federal Statistical Office of 29 January 2021.