Wachstumskurve mit Kugelschreiber symbolisiert die wirtschaftliche Lage.

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Economic output increased only slightly in Q4 of 2020 due to the restrictions imposed in the wake of the second wave of the pandemic. Gross domestic product increased by 0.3%. In 2020 as a whole, economic output fell by 4.9%.

Industrial output declined only slightly in January, with motor vehicle production particularly affected by bottlenecks in semiconductors. There was also a significant decline in the construction sector not least due to the weather conditions. The number of new manufacturing orders continues to be well above pre-crisis levels.

• The ongoing restrictions continued to weigh on the retail sector at the beginning of the year, after Christmastime business had already been severely affected. Sales excluding motor vehicles declined significantly as in-store trade suffered particularly from the measures taken to tackle the pandemic. In contrast, e-commerce and mail order services continued to grow noticeably compared to the previous year.

• The labour market is continuing to hold up. Gainful employment (seasonally adjusted) saw an increase in January. Unemployment (seasonally adjusted) increased only slightly in February, while there was a slight decrease in underemployment. The number of registrations for short-time work made in February declined, but the number of people in short-time work could still go on to increase somewhat for a while.
Economic development divided in two: limited service sector contrasts with solid industry

Economic development divided in two: limited service sector contrasts with solid industry

The economic situation up to March shows a divided picture: while the service sectors continue to be restricted by the measures to tackle the pandemic, the industrial economy is proving robust. Although industrial output fell by 0.5% in January compared to the previous month, it can be seen – against the backdrop of a very strong increase in December – as more of a soft patch. Meanwhile, economic activity in the service sectors has been affected by the lockdown measures, although a little more confidence has been observed recently in these areas too. In general, hopes are high that restrictions will soon be scaled back as vaccination efforts progress. The development of the economy now depends to a large extent on whether infection can continue to be controlled, and on how quickly restrictions can be eased as a result. It is, however, clear that without sustained efforts to contain the coronavirus pandemic, "normal" economic activity will not be able to return either.

Looking back, the economic recovery in the second half of 2020 lost significant momentum in the final quarter of 2020 due to a second wave of the pandemic and the measures taken to contain this. According to the detailed report from the Federal Statistical Office, the economy grew by 0.3% in 2020, a rate of growth which was higher than many had expected. Nevertheless, following the 8.5% increase in the third quarter, the dampening effect of the ordered closures can clearly be seen. As expected, this mainly affected private consumption, which is particularly dependent on social contact. This is the continued picture within the services sector, which will thus also shape economic development in the first quarter of 2021. By contrast, German foreign trade and the closely related industrial economy are proving robust. Despite the burdens faced in the service sector, the labour market therefore continues to be stable, with employment levels having slightly increased again recently, and short-time work having remained virtually unchanged.

Global economy continuing to recover

The global economy is continuing to recover, but has yet to step out of the shadow of the pandemic. Global industrial production increased month-on-month for the eighth month in a row in December (+1.3%), thus exceeding pre-crisis levels. World trade also continued to expand in December (+0.6%) and once again exceeded pre-crisis levels. The sentiment indicators suggest that we can expect the slight global recovery process to continue. For instance, the combined J.P. Morgan / IHS Markit purchasing managers’ index rose to 53.2 points in February (December: 52.3 points), thus remaining above the growth threshold of 50 points. Sentiment among service providers in particular made a significant leap upward, but still lags behind expectations in industry. As before, this is likely to be due to the fact that the service industries are primarily affected by the measures taken to tackle the pandemic. One reason for the more confident mood is likely to be the global vaccination programmes.

Exports up, imports down

German foreign trade is picking up again following a soft patch in the previous month. The value of goods and services exports rose by 0.3% in January, both adjusted for seasonal variations and on a nominal basis. In the two-month comparison, this meant a similarly strong increase of 0.4%. Imports saw a 2.7% drop in January compared to the previous month. The two-month comparison shows a sideways movement of -0.1%.

At national level, too, the restrictions imposed on account of the pandemic are virtually no longer reflected in the leading indicators on the external economy, which is dominated by industry. The balance of ifo export expectations for the manufacturing sector rose sharply again in February and was well above pre-crisis levels. New orders from abroad also rose strongly in January (+4.2%), more than making up for the dampener in December (3.1%). The outlook for German foreign trade continues to brighten and is cautiously optimistic in view of the recovery of important trading partners (United States and China).

Slight decline in industrial production

Output in the goods-producing sector declined in January. Production output fell by 2.5% month-on-month in seasonally adjusted terms. Industry recorded only a slight decline of 0.5%, with mechanical engineering providing positive impetus, while automotive production fell sharply (-12.1%) due to bottlenecks in the semiconductor sector. Output in the construction sector also decreased significantly, falling by 12.2% due to weather conditions. In addition, the result for December was revised significantly upward, being raised 8.6 percentage points to +5.4 percent.

The two-month comparison of January/December against November/October shows slightly positive rates of growth overall: output in the goods-producing industry was up 1.4%, industrial production up 2.1% and construction sector output up 0.2%.

New orders in the manufacturing sector increased again in January and were up 1.4% overall on the previous month. As such, they still significantly exceeded their Q4 2019 pre-pandemic level by nearly 6%. The increase was driven by a 4.2% rise in foreign demand. By contrast, domestic orders fell by 2.6%. While there were increases of 3.3% and 0.2% in capital goods and intermediate goods respectively, consumer goods (especially clothing) recorded a decline of 5.8%. Adjusted for large-scale orders, orders grew by 2.8%. In a two-month comparison, new orders declined only marginally (-0.2%).

The future outlook for the industrial sector depends on the course of the pandemic. However, the increase in new orders and brightening of the ifo business climate indicator in February 2021 signal confidence for coming developments.

Ongoing restrictions weigh on trade

Retail turnover (excluding motor vehicles) continued to decline noticeably at the beginning of the year. In January, sales fell by 4.5% compared to the previous month, after tightened measures in response to the pandemic had already severely impacted Christmas sales (December: -9.1%). Developments in the individual areas of the retail sector varied. Trade segments particularly affected by the closure of many retail stores were textiles, clothing, footwear and leather goods, while e-commerce and mail order services continued to record significant sales increases. Trade (including motor vehicles) decreased 4.4% in December month-on-month, following increases of 1.0% and 1.3% in November and October respectively. New registrations of passenger cars by private owners recovered somewhat in February, rising by 5.1%. Following the expiry of the temporary reduction in sales tax rates at the beginning of the year, there was a sharp drop of 50.9% in January (December and November: +15.1% and +12.3% respectively).

Ifo business expectations for the retail trade recovered somewhat from the massive slump seen in January. The GfK consumer climate index is also expected to show a slight recovery in March in view of the start of the vaccination programme and hopes that pandemic-related restrictions will be eased. However, both leading indicators remain at a low level.

The consumer price level increased 0.7% in February month-on-month, following a 0.8% increase in January. The inflation rate, i.e. the year-on-year development of prices, sat at 1.3% and 1.0% respectively in this two-month period, while it had been almost consistently below zero in the second half of 2020 due to the temporary reduction in sales tax rates. Other reasons for the jump in the inflation rate at the beginning of the year are the recovery in import and raw material prices, and the introduction of carbon pricing. Once these special effects disappear from the inflation statistics, the upward trend in consumer prices is likely to weaken again. A sustained increase in the inflation rate is not expected. The core inflation rate (excluding energy and foodstuffs) remained unchanged, at +1.4% in February (December: +0.4 percent).

Labour market continuing to hold up

The labour market is continuing to prove resilient. Seasonally adjusted unemployment rose only slightly in February, climbing by 9,000, while there was a slight decline in underemployment. However, as a result of the measures taken to tackle the pandemic, there are signs of a further slight increase in short-time work. In January, gainful employment increased slightly in seasonally adjusted terms, rising by 16,000 persons. However, demand for labour remained subdued. In December, the number of jobs subject to social insurance contributions (seasonally adjusted) rose markedly, up by 64,000. According to projections, there were again slightly more people in short-time work in December (2.4 million), but notifications of short-time work were down (around 500,000 in February after 745,000 in January). This suggests that short-time work could still increase somewhat in the current lockdown, but should remain well below its level in the spring of last year. According to the unadjusted figures, unemployment rose slightly to 2.90 million people. Year-on-year, the gap has risen by +509,000 people. The survey-based leading indicators by the Institute for Employment Research and ifo showed differing trends in February. While the employment situation in industry eased, service providers are pessimistic. In the retail sector in particular, the ongoing closures are leading to a decline in employment.
[1] Press release by the Federal Statistical Office of 24 February 2021.