Stronger than expected: German economy is growing by 1.6 percent

Stronger than expected
German economy grows by 1.6 percent

The German economy will continue to grow faster than initially assumed in 2021. Private households in particular are generating momentum. However, the crisis is still affecting the national budget.

The pleasure of consumers to buy after the corona lockdown helped the German economy to grow in the spring. The gross domestic product rose between April and June by 1.6 percent compared to the previous quarter and thus a tad more than previously thought, as announced by the Federal Statistical Office. At the end of July, statisticians had reported an increase of 1.5 percent.

Private households in particular provided momentum, spending 3.2 percent more than before. Government consumption climbed 1.8 percent. Foreign trade, however, slowed the economy because exports grew by 0.5 percent, less than imports with 2.1 percent. “The upswing has taken off,” tweeted Federal Minister of Economics Peter Altmaier. “In 2021 & 2022 our economy will grow strongly.” This enabled the economy to free itself from the Corona low, because at the beginning of 2021 the economy had shrunk by 2.0 percent.

While the service providers in particular are sniffing the morning air after the months of restrictions due to the pandemic, industrial companies could often do better despite good orders. Because supply bottlenecks and rising costs for important primary materials are a problem for many companies. Despite the race to catch up, economic output was still below the pre-crisis level – that is, 3.3 below the value at the end of 2019. The Bundesbank assumes that the economy is likely to grow faster again in the current summer quarter than in spring. It remains to be seen whether the economy will return to its pre-crisis level in summer or not until autumn.

The Bundesbank experts see the delta variant and declining momentum in vaccination as risks for the economy, which could lead to stricter containment measures again. “We are still assuming that the German economy will reach pre-crisis levels before the end of the year,” emphasized ING economist Carsten Brzeski. “In order to really achieve this, however, the current distortions in the supply chain must not last too long.

Meanwhile, the measures against the Corona crisis in the first half of the year left a huge hole in the German state budget. The federal, state, local and social security sectors together spent 80.9 billion euros more than they received by the end of June, as the statistics office also announced. The deficit corresponds to 4.7 percent of the gross domestic product and is the second highest in the first half of the year since German unification.