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Robust recovery in the German economy

According to the most recent issue of the Bundesbank’s Monthly Report, German economic output likely grew substantially again in the second quarter of 2021. The Bundesbank's experts estimate that the German economy has thus more or less offset the severe setback it suffered in the first quarter, which was brought on by the comprehensive pandemic containment measures. The services sector, in particular, contributed to this robust recovery, they explain, as a lower incidence of COVID-19 infections allowed a loosening of restrictions from May onwards, leading to a significant increase in activity.

Shortages hamper industry and construction sector

By contrast, the Monthly Report notes that ongoing bottlenecks in the delivery of intermediate products slowed industrial output, which, on an average of April and May, was down by ¾% in comparison with the first quarter (after seasonal and calendar adjustment). This resulted in a considerable slowdown in production in the motor industry in particular, which experienced a substantial reduction of 9½%. According to Ifo Institute surveys, materials shortages also caused problems in the construction sector. Nevertheless, construction output increased substantially compared with the first quarter.

The Bundesbank experts write that – provided the pandemic does not lead to any notable setbacks and the delivery bottlenecks begin to at least gradually be resolved – the aggregate pace of growth may well accelerate in the third quarter. In this case, real gross domestic product could potentially reach its pre-crisis level again as early as the third quarter.

Continued decline in short-time work

During the winter, employment and unemployment in Germany were kept stable through the large-scale use of short-time work, the Bundesbank writes. Following a steep reduction in March, the number of short-time workers continued to drop – albeit at a slower rate – in April, despite the reignition of the pandemic due to the third wave. In April, the Federal Employment Agency reported that, according to its estimates, 2.34 million persons were still in economically induced short-time work. This represents a reduction of more than one-quarter compared with February. The volume of hours lost to short-time work has even fallen by more than one-third. According to the Bundesbank, the further loosening of restrictions in May and June will probably have greatly reduced the use of this instrument yet further. As in the previous two months, May saw only slight growth in employment. The Bundesbank's experts estimate, however, that the rate of employment growth will accelerate significantly in the coming months. Registered unemployment was down by 38,000 (seasonally adjusted) in June, reducing the unemployment rate to 5.9%.

Consumer prices continue to increase

The Bundesbank’s figures show a marked rise in the price of crude oil in June. It rose by 7½% on the month and was thus about 80% up on the year. Consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) rose substantially by 0.5% (seasonally adjusted) in June. In particular, prices for industrial goods excluding energy and for services rose distinctly. The latter was primarily because the prices of certain services were raised markedly after the removal of COVID-19 restrictions. Annual headline HICP inflation sank from 2.4% to 2.1%. This was partially caused by last year’s late Whitsun holiday, meaning travel was significantly cheaper in a year-on-year comparison. The Bundesbank expects a return to significantly higher inflation rates from the current month on, with inflation potentially temporarily exceeding the 4% mark by the end of the year. One reason for this is the baseline effect of the temporary VAT cut in 2020.