In the final quarter of 2021, economic output in Germany is likely to have declined slightly, the Bundesbank writes in its current Monthly Report. According to the Bank’s experts, this is primarily due to the resurgence of the pandemic. Economic output in the services sector was particularly impaired in December, note the authors of the Monthly Report, with ifo Institute surveys showing that enterprises’ assessment of the current situation deteriorated significantly in the retail sector and the hotel and restaurant sector. Industry and construction, by contrast, probably generated positive stimuli in the final quarter of 2021, the authors explain, with the automotive sector, in particular, picking up strongly.

Pandemic-related setbacks dampen recovery 

While gross domestic product (GDP) rose by 2.7% on the year in 2021 as a whole, this was not nearly enough to offset the previous year’s sharp decline of 4½%, the Bank’s experts say. The authors of the Monthly Report write that pandemic-related setbacks as well as supply-side bottlenecks dampened the recovery last year, with gross value added remaining well below pre-crisis levels, especially in particularly hard-hit sectors such as accommodation and food services and the arts, entertainment and recreation sector. The report points out that private consumption, too, suffered from the effects of the pandemic and merely stagnated in relation to 2020.  

Favourable labour market developments continue

With regard to the labour market, the Bundesbank writes that the relatively favourable developments in employment and unemployment continued, in spite of the resurgence in infections. According to Bundesbank figures, in November 2021 employment increased by a seasonally adjusted 43,000 persons, while the unemployment rate decreased slightly, down 0.1 percentage point to 5.2%. The report states that new staff were recruited mainly in business-related services, information and communication services, and the hotel and restaurant sector, while no recovery was yet discernible in manufacturing. Leading indicators signalled a temporarily weaker increase in employment, the Bank’s experts explain, noting that the rising number of vacancies and frequent reports of labour shortages pointed to a continued high level of labour demand in Germany at the same time.

Inflation rate still very high

According to the Bundesbank’s economists, the inflation rate remained at a very high level. The Monthly Report states that compared with the previous month, consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) rose only a little in December. The Bank’s experts note that energy prices decreased markedly for the first time in some months on the back of falling crude oil prices, and that price inflation for services also weakened somewhat. By contrast, point out the authors, food prices picked up fairly significantly, and price pressures for non-energy industrial goods, excluding clothing, remained high. According to the Monthly Report, the overall inflation rate decreased from 6.0% to 5.7% on the year.

HICP inflation also likely to stay high at start of 2022

Overall, prices rose more steeply than average in 2021, write the Bundesbank’s experts. According to the Monthly Report, on an annual average, HICP inflation rose steeply from 0.4% in 2020 to 3.2% in 2021. This, the authors note, was partly attributable to one-off effects such as the introduction of the climate package, the rebound in crude oil prices and the rollback of the temporary VAT cut. Moreover, the authors point out that the prices of services and non-energy industrial goods increased exceptionally steeply at various times during the year, primarily on account of delivery bottlenecks and price hikes intended to compensate for previous profit losses. According to the Bank’s experts, as these factors are continuing into the new year, HICP inflation is likely to remain exceptionally high at the start of 2022, despite the fact that the aforementioned one-off effects are elapsing. On top of this, note the authors of the Monthly Report, the considerably higher market prices for natural gas will mean a commensurate hike in consumer rates.