As coronavirus eases German economy shows green shoots of recovery

Frankfurt: As COVID-19 lockdown gradually eased in the spring, German consumer demand has helped the economy grow. High public expenditure, meanwhile, blew a big hole in government spending figures.

The German economy grew by 1.6 per cent in the second quarter of 2021, thanks largely to domestic consumer spending as the coronavirus lockdown was relaxed.

The growth has helped Germany’s economy emerge from an economic low that saw it contracting earlier in the year.

Meanwhile, German government spending remained in the red, as national, state and local governments shouldered much of the economic burden of the pandemic.

The crisis had precipitated a decline in economic performance of minus 2 per cent for the first quarter of 2021.

Gross Domestic Product rose by 1.6 per cent between April and June compared with the previous quarter, according to figures released by the Federal Statistical Office on Tuesday.

As lockdown restrictions were reduced coming into spring, final consumption expenditure in the second quarter of 2021 was markedly up compared with the beginning of the year.

Two key factors helped fuel the rebound. Household final consumption expenditure increased by 3.2 per cent on the first quarter, while one measure of government expenditure rose by 1.8 per cent.

The effects of the pandemic still appear marked, though. Compared with the fourth quarter of 2019 — the quarter before the coronavirus crisis began — GDP was 3.3 per cent lower.

Government spending to cushion the economic blow of the crisis left an €80.9 billion ($95 billion) hole in public finances for the first half of 2021.

The amount equated to a public sector deficit of 4.7 per cent of GDP — the largest in 26 years.

The ING bank’s chief economist, Carsten Brzeski, told the DPA news agency that he saw the large public deficit as the “dark side of the rapid economic recovery.”

“As a result of the state shouldering the bulk of the economic damage caused by the pandemic, the economy will have returned to pre-crisis levels before the end of the year,” said the economist.

“However, the state budget will be still further burdened,” he said.