NEW YORK (AP) - Germany’s economy contracted by as much as 1% in the final quarter of 2021 as the emergence of the coronavirus’s omicron strain added to drags on output from supply snarls and the fastest inflation in three decades.
Gross domestic product shrank by between 0.5% and 1% in the three-month period, the Federal Statistics Office said Friday at a briefing. For the year as a whole, it advanced 2.7%, in line with expectations.
That, however, leaves GDP still 2% short of its level in 2019, before Covid-19 struck, and trailing Europe’s other big economies in healing from the pandemic. Analysts estimate France, Italy and Spain will report expansion of 4.5% or more later this month.
The continent’s largest economy is tipped to make up ground in the year ahead -- even as omicron’s rapid spread threatens stricter curbs on movement, staff shortages and production cuts in the near term.
While a flood of infections triggered by the variant will weigh during the winter months, there’ll be “significant momentum” from the spring onward, according to the Bundesbank, which predicts growth of 4.2% for the whole of 2022.
First, though, Germany may have to come through a technical recession. Dekabank economist Andreas Scheuerle forecasts output will shrink 0.8% between January and March -- a second straight quarter of contraction.
He says Friday’s full-year figure suggests the economy must have performed better than so-far reported in previous quarters.
The spread of the delta, and now omicron, variants has drawn tighter restrictions on hospitality, weighing on activity, while a parts shortage is keeping industrial output way below demand. We see both of these constraints easing a little through 1Q, but it won’t be until later this year that a fuller recovery is made.
A large share of Germany’s struggles is rooted in its outsized reliance on manufacturing -- a boon during previous crises that turned into a liability as supplies of microchips dried up and other components became harder to source. Carmakers have suffered the most, with almost a fifth of employees in the industry furloughed in December.
As omicron takes hold, more stringent rules on vaccination may ease some pressure on factories. Chancellor Olaf Scholz reaffirmed his support on Wednesday for making shots compulsory for all adults, while Volkswagen AG stepped up its own vaccination push.
Inflation has been another obstacle. Nearly 80% of non-food retailers surveyed by industry group HDE said they’re unhappy with end-of-year sales, which were also hurt by rules banning unvaccinated customers who hadn’t recovered from Covid-19.
Private spending was unchanged last year, while the savings rate remained elevated at 15%.
Those savings may now prove crucial in cushioning the hit from soaring prices. Germany’s government is also considering aid for households struggling to pay surging energy bills.