German Economy Unexpectedly Outperforms on Investment, Trade

Germany’s economy performed better than expected at the end of 2020, growing 0.3% as stronger investment and exports offset a drop in consumer and government spending.

Capital investment expanded 1% in the fourth quarter and exports rose 4.5%. Consumer spending plunged 3.3% as pandemic lockdowns were reintroduced.

While the economy was more robust than expected at the end of 2020, the outlook has barely improved this year. Activity will remain restrained until vaccinations allow restrictions to be loosened, with business closures and social restrictions repeatedly extended, and European Union vaccinations lagging far behind the U.S. and U.K.

German Chancellor Angela Merkel’s government has warned that the country is in the midst of a third wave of coronavirus infections and that moves to reopen schools and businesses should be weighed with caution.

Economists surveyed expect the nation’s economy to contract by 1.5% in the first quarter.

The manufacturing sector has been a key source of resilience throughout the crisis, helping Germany hold up better than many of its euro-area neighbors, and will likely benefit from an upturn in global trade. Still, factories are currently struggling with supply-chain disruptions and component shortages.

More broadly, companies surveyed by the Ifo institute this month said they’re increasing optimistic for a recovery later this year.

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