Resilient data suggest Germany avoided fresh downturn in late 2020


Strong German economic data suggest the eurozone’s largest economy avoided a double-dip downturn in the final three months of 2020, despite the latest restrictions to control a fresh surge in coronavirus infections.

Manufacturing orders, industrial production, retail sales, employment and exports data for November and December released this week were all better than expected, indicating the economy was resilient at the end of last year.

Economists had feared that the upsurge of Covid-19 would trigger a double-dip downturn across large parts of Europe in the final quarter of 2020, after the historic recession in the first half of the year.

But GDP growth estimates for Germany’s fourth quarter were already better than for other European countries. In December, Oxford Economics forecasted a sharp economic contraction for France and Italy, but only a marginal fall for Germany.

Next week the national statistical office will release early estimates for German economic growth in 2020, which economists polled by Reuters expect to come in at minus 5.1 per cent, about half the fall expected for France.

Stefan Schilbe, chief economist for Germany at HSBC, said the latest economic data “provides another sign that the restrictions implemented on 2 November to contain the further spread of Covid-19 did not have a material effect on the industrial recovery”.

German goods exports rose 2.2 per cent in November compared with the previous month, figures published on Friday showed — well above the 0.8 per cent expansion forecast by economists polled by Reuters.

The performance was supported by double-digit annual exports growth to China, where the virus is largely under control. UK companies buying goods and parts ahead of the end of the Brexit transition period also contributed.

The export-led manufacturing sector logged a larger than expected expansion in industrial production in November, figures published on Friday showed. In the same month, forward leading indicators of industrial orders rose for the seventh consecutive month — the longest period of expansion since 2000.

Andrew Kenningham, chief Europe economist at Capital Economics, said the data “confirm that German manufacturers withstood the restrictions imposed in November much better than many feared and suggest that the economy almost certainly expanded in [the fourth quarter]”.

The strength of the German industrial sector, by far the largest in the eurozone accounting for a bigger share of the economy than in any other advanced country, is set to continue in December, unofficial economic activity trackers suggest.

German truck mileage, an alternative measure of industrial production, reached its highest level for five years in December.

Carsten Brzeski, global head of macro at ING, said: “Industry is back as the German economy’s biggest hope in the race against the double-dip [downturn].”

Other sectors of the economy also performed relatively well. The number of German jobseekers fell sharply in December, and November retail sales were stronger than expected with a 1.9 per cent month-on-month expansion.

However, the country introduced a national lockdown in mid-December that will hurt services and restrictions tightened this week, including the closure of schools, and extended until the end of the month.

“We suspect that the German economy will contract again in [the first quarter] as the lockdown — which has been tightened in the face of an alarming rise in Covid-19 numbers — is unlikely to be eased until the spring,” Mr Kenningham said.


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