A recent surge in coronavirus cases and a new variant is casting a cloud over the near-term prospects for Germany’s economy, and economists fear stagnation or even a contraction in the last quarter of the year.
The incidence of Covid-19 infections is currently higher in Germany than at the beginning of December 2020. The seven-day incidence has been stable at around 450 per 100,000 people over the last two weeks.
“This is remarkable in that, in contrast to the previous year, a large proportion of adults now have full vaccination protection,” Commerzbank said.
To fight the spread of the virus, Germany’s council of federal and regional leaders decided on Dec. 2 to bar unvaccinated people from most shops, restaurants and events nationwide.
Citi estimates that these targeted restrictions could cost 0.1% to 0.2% of quarterly GDP a week. But the bank said a lockdown of only unvaccinated people will have a much smaller economic cost than a full-scale shutdown.
The emergence of the Omicron variant of the coronavirus, which is reportedly much more transmissible, only adds to the challenges.
According to the latest update by the European Centre for Disease Prevention and Control, 15 cases of the new variant have been detected so far in Germany.
“The new Omicron variant has added a further burden to the economy when short-term prospects were already weighed down by the Delta wave of the pandemic, supply shortages, and a spike in inflation,” Berenberg European economist Salomon Fiedler said.
“A national lockdown is unlikely in Germany at present, but this assessment is subject to Omicron’s impact on infection and hospitalization rates,” Johannes Schultz, analyst at specialist global risk consultancy Control Risks, told The Wall Street Journal.
Localized lockdowns and restrictions on unvaccinated individuals are likely to be the primary measures used to combat the virus, Mr. Schultz said.
After two very strong quarters, UBS expects a slowdown in German growth in the last quarter of the year. The Swiss bank forecasts 0.5% growth in the fourth quarter, but the new restrictions could make the economy stagnate, UBS’s chief German economist Felix Huefner told the Journal.
Mr. Huefner said restrictions are less strict this winter than in the previous year and the economic impact should be milder. With every new round of measures, the economic cost is lower, he said.
Commerzbank is more pessimistic and expects a contraction of the German economy in the fourth quarter. The impact of the rise in cases and restrictions is especially harsh on the services sector, Commerzbank’s senior economist Ralph Solveen said.
The number of restaurant visits has fallen sharply since the beginning of November, when cases started their upward trend, according to OpenTable data. The number of visitors to shopping centers and leisure areas has also dropped significantly, Google mobility data shows.
“How severe the decline in economic activity will be and how long it will last depends on the further course of the pandemic,” Mr. Solveen said.
The imposition of further restrictions depends on the Omicron variant, Control Risks’ Mr. Schultz said. “Should it prove to have a significant effect on infection and hospitalization rates, the Health Minister Karl Lauterbach is likely to push for tighter measures,” he said.
Although the short-term impact on the German economy may be relatively harsh, economists expect it to rebound after the first half of next year.
The current restrictions and the additional measures that may follow in the coming weeks, may only be in place for a relatively short period of time, as was the case a year ago when there was a tightening of measures in mid-December, Commerzbank’s Mr. Solveen said.
“However, the experience of last winter suggests that the economy will be impaired for much of the first quarter and will therefore contract again,” he said.
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