The Bundesbank announced on Monday that the German economy is likely to slump sharply this quarter as pandemic-fighting curbs hit the services sector and even the booming construction industry slows.
In its latest monthly report, the German central bank seemed to abandon its expectations of a rebound in the spring and dropped references to the vaccination drive, which has been plagued by delivery delays and news reports of potential side-effects, as a catalyst.
“The measures to contain the pandemic are more stringent on average in the current quarter than in the previous one,” the Bundesbank said. “Therefore, the economic output in the first quarter of 2021 is likely to decline sharply … particularly in the contact-intensive service sectors.”
An increase in sales tax, which had been temporarily cut last year, had probably contributed to a substantial slump in construction in January, it added.
Industrial production also eased in the first month of the year but order intake was strong and exports of goods increased, the Bundesbank said.
Exports of goods to Britain were the exception, however, falling by nearly a quarter in January, the first month after it left the European Union single market.
In last month’s report, the Bundesbank had said the economy would recover in the spring as COVID-19 cases fell and vaccines were distributed.