German economy shrank 0.7% in 4th quarter as COVID resurged

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BERLIN (AP) — The German economy shrank by 0.7% in last year's fourth quarter amid a resurgence in coronavirus infections and new restrictions, official figures showed Friday.

The quarter-on-quarter decline reported by the Federal Statistical Office followed two quarters of solid gains that came despite persistent supply bottlenecks.

Gross domestic product grew 2.8% over the whole of last year, the office said, rebounding from a plunge of 4.6% in 2020 when pandemic lockdowns were at their most severe. That figure was revised up slightly from the preliminary figure of 2.7% the office reported earlier this month.

The government this week cut its growth forecast for this year to 3.6%, down from the 4.1% Germany’s previous government forecast in late October. Economy Minister Robert Habeck told parliament on Friday that it expects 2.3% growth in 2023.

The first-quarter performance will be “inhibited, above all because of the corona pandemic and the restrictive measures but of course also because of the foreign policy situation — times of crisis are often times in which the investment climate suffers,” Habeck said, alluding to tensions with Russia over Ukraine. “We expect that the pre-crisis level will be reached in this year's second quarter.”

Germany is currently seeing another spike in COVID-19 infections fueled by the highly contagious omicron variant.

However, on Tuesday, a closely watched survey showed business confidence unexpectedly picking up in January after a six-month slide.

That increase came thanks to a significant improvement in managers’ outlook for the next six months, even as their assessment of the current situation worsened.