German output shrinks in Q1 as lockdown dampens consumption

FILE PHOTO: The skyline with its financial district is photographed during sunset as the spread of the coronavirus disease (COVID-19) continues in Frankfurt, Germany, October 26, 2020, REUTERS/Kai Pfaffenbach

BERLIN (Reuters) – The German economy contracted by a greater than expected 1.7% in the first quarter as a lockdown in place since November to contain the coronavirus stifled private consumption in Europe’s largest economy, data showed on Friday.

“The coronavirus crisis caused another decline in economic performance at the beginning of 2021,” the Federal Statistics Office said. “This affected household consumption in particular, while exports of goods supported the economy.” A Reuters poll had pointed to a first-quarter contraction of 1.5%.

The economy had expanded by an upwardly revised 0.5% in the last three months of last year as strong demand for German goods from China and the United States help the manufacturing sector offset headwinds created by subdued consumption.

Economists said that equation failed to materialise in the first three months of the year as the manufacturing sector is facing its own challenges in the form of production capacity problems and chip shortages affecting the automotive sector.

“Until now industry had compensated for losses in the services sector,” Thomas Gitzel, chief economist at VP Bank Group wrote in a note. “This is no longer the case. Industry suffered and is suffering from a shortage of material.”

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