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German economy grows by 2.7% in 2021

According to the Federal Statistical Office (Destatis), gross domestic product (GDP) in 2021 was 2.7% higher than in 2020 (in price-adjusted terms). “Economic activity in 2021 was once again highly dependent on coronavirus infection rates and the associated containment measures,” said Georg Thiel, President of the Federal Statistical Office, at a press conference in Wiesbaden. However, in spite of the ongoing pandemic situation and increasing supply and materials shortages, the German economy recovered from its slump in the previous year, although economic output has not yet returned to pre-crisis levels. GDP in 2021 was still 2.0% lower than in 2019, the year prior to the outbreak of the pandemic.

Slight recovery in industry and services

As reported by the experts, economic activity in 2021 increased relative to the preceding crisis year in almost all sectors. Price-adjusted gross value added in the manufacturing sector rose significantly on the year, by 4.4%. Most services sectors also recorded marked increases on 2020: for instance, business services providers, which include research and development services, legal and tax advisory services and engineering activities, saw a 5.4% rise in economic output. In the aggregated trade, transport and accommodation and food service activities sector, economic growth was somewhat more subdued, at 3.0%, on account of ongoing pandemic-induced restrictions. Only the construction sector, which was seemingly unscathed by the pandemic in 2020, experienced a slight year-on-year decline of 0.4% in output in 2021.

According to the statisticians, economic activity in most sectors has not yet returned to pre-crisis levels despite the growth seen in 2021. For instance, last year, economic output in the manufacturing sector undershot its 2019 level by 6.0%. Other service providers (which include not only sport, culture and entertainment but also the creative industries) were particularly hard hit by the ongoing pandemic, with price-adjusted gross value added in 2021 lagging behind its pre-crisis level by as much as 9.9%. In the segment of public services, education and healthcare, the decline in output seen in the crisis year of 2020 was largely offset in 2021. Construction and the information and communication sectors remained resilient during the pandemic, according to Destatis, recording marked increases in economic activity compared with 2019.

Increased government consumption

According to the statisticians, price-adjusted consumer spending in 2021 stabilised at the low level of the preceding year – still far removed from its pre-crisis level. Government consumption was a mainstay of growth for the German economy in 2021, too, topping its already high level of 2020 by rising by a further 3.4% in price-adjusted terms during the second year of the pandemic. The government’s increased expenditure was chiefly attributable to providing free rapid antigen tests and coronavirus vaccines across the board as from spring of 2021, as well as to running test and vaccination centres. In 2021, foreign trade recovered from the sharp declines seen in the previous year: following price adjustment, Germany exported 9.4% more goods and services than in 2020. Imports, too, increased by a price-adjusted 8.6% in the same period. Germany’s foreign trade in 2021 thus only slightly undershot its 2019 level.

Pandemic leads to high government deficit

Germany’s efforts to combat the coronavirus pandemic once again left general government with a large fiscal deficit. As reported by the Federal Statistical Office, the expenditure of central government, state government, local government and social security funds exceeded receipts by €153.9 billion in 2021. This was slightly more than in 2020 (€145.2 billion) and represented the second-highest deficit seen since Germany’s reunification. The deficit for 2021 is equivalent to 4.3% of gross domestic product.

Full-year 2021 data are based on preliminary estimates for the fourth quarter; initial data for Q4 are expected to be released on 28 January 2022. Detailed national accounts data are set to follow on 25 February 2022.