Germany’s economy grew modestly last year as Europe’s industrial powerhouse struggled to shake off the effects of the coronavirus pandemic and supply chain issues, official data showed on Friday.

The 2.7 per cent growth figure likely leaves Germany as a European laggard in the recovery from the economic shock of the pandemic. Growth across the European Union is expected to have been around five per cent in 2021, according to the latest predictions by the European Commission, with France and Italy surging ahead.

Germany’s modest rebound was achieved “despite the continuing pandemic situation, more delivery bottlenecks and material shortages,” the head of the federal statistics agency Georg Thiel said in a statement. “The German economy managed to recover from the sharp fall last year although the economic performance has not yet reached its pre-crisis level again,” Thiel said.

In 2020, on a price and calendar adjusted basis, Germany’s GDP plunged by 4.9 per cent as the coronavirus forced large parts of Europe’s biggest economy to shut down.

“The very high expectations placed in the German economy at the beginning of 2021 were only partially fulfilled,” said Fritzi Koehler-Geib, chief economist at German public lender KfW. Early predictions for 2021 tabled growth estimates upwards of four per cent. Those forecasts were progressively revised down as industry was hampered by bottlenecks and new health restrictions.

Supply issues

“The economic development was highly dependent on COVID-19 infection rates and the associated preventive measures also in 2021,” Thiel said.

The pandemic was also at the root of upheaval in global supply chains, leading to shortages of raw materials and components that have hampered industry month after month. German manufacturers, with their vast web of suppliers and reliance on exports, have been particularly hard hit by the widespread shortages.

The pandemic was also at the root of upheaval in global supply chains, leading to shortages of raw materials and components that have hampered industry month after month

The country’s flagship carmakers were forced to interrupt production at their factories to manage a shortage of chips, a key component in both conventional and electric vehicles.A total of 2.62 million cars were sold in Germany last year, according to the federal transport authority, 10.1 per cent lower than in 2020, a year in which the industry had already seen numbers plummet due to the pandemic.

Climate spending

“The outlook for economic growth is generally favourable, but the risks are high, especially in the short term,” Koehler-Geib said. “As in 2021, there is the threat of an economic rollercoaster ride over the peaks and valleys of new Corona waves,” she added.

The sluggish performance is a concern for Chancellor Olaf Scholz’s new government and its plans to boost the economy with climate investments.

In 2021, the state took on less €24.8 billion less in debt than expected, and is setting aside €60 billion to invest in its net zero and digital transformation. In doing so, the government was “reserving unused opportunities from last year” to invest in “growth drivers like climate protection”, Finance Minister Christian Lindner said in a speech to parliament on Friday.

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