The German government has managed the country’s outbreaks better than its European peers with the help of aggressive testing, contact tracing, and social distancing. Germany is also less exposed to COVID-19 thanks to its strong focus on manufacturing. However, amid an unpredictable, fast resurgence in new COVID-19 infections, the German government enforced a “smart” lockdown in November to avoid a full economic shutdown like those imposed in other Western European countries. This lockdown will result in a softer decline in output than during the first lockdown, but the recent measures will undoubtedly delay the timing of the economic rebound. However, as domestic demand gradually strengthens across the globe, German export demand will resume its growth trajectory, underpinning the full recovery of the German economy by mid-2022.
Germany will offer more opportunities than its European peers. Consumer demand in the first half of 2020 contracted to a smaller extent compared to the rest of Western Europe, and consumer confidence will similarly trend at higher levels in 2021. In the wake of the pandemic, the German government, under the auspices of the European Central Bank (ECB), introduced a mammoth stimulus package and further enhanced it in November to support employment in pandemic-affected sectors in 2021.
From a sectoral perspective, manufacturing will be key to recovery. Manufacturing amounts to 21% of the German economy, and hence an uptick in manufacturing output is an essential impetus for German growth. In the post-lockdown period, manufacturing production surprised to the upside, fueled by consistent improvement in demand for German manufactured goods from both within and outside the European Union. Although the recent tightening in restrictions will pause the recovery in manufacturing, we expect record-setting consistent growth in manufacturing in 2021.
Actions for Business Professionals
- Share information with your distributors, wholesalers, and partners about available options for government financial support programs.
- B2B firms should further optimize supply chains by supplying products from factories in the least impacted areas of portfolios to areas most impacted by low supply chain capacity.
- B2C firms should enrich their demand forecasts with primary and secondary short-term and medium-term datapoints to better monitor volatile market dynamics.
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