Overall situation: recovery fraught with uncertainty
The economic recovery process has been continuing, but the pandemic situation poses a risk. Following a historic 9.8% drop in GDP in Q2, the German economy experienced a palpable recovery in Q3, growing by 8.5%. This allowed economic output to reach approx. 96% of the level posted in Q4 2019, before the outbreak of the pandemic. In October, economic output largely continued to grow. Industrial production had a strong boost from the automotive industry, which saw another sharp expansion. Most other industrial sectors also increased their output. New orders in the manufacturing sector even topped the level of Q4 2019 by approx. 3%. Other economic indicators are also pointing upwards, with October being the sixth consecutive month of export growth. The retail sector was also able to once again increase its turnover in October. Gainful activity and employment subject to social security contributions also grew, whereas unemployment decreased markedly in November.
Looking forward, however, the outlook is less bright. The ifo business climate softened in November and is now slightly negative, overall. The balance was tipped by the business expectations, which, like export expectations, are now considerably gloomier. The partial lockdown in force since the beginning of November and the additional measures adopted with a view to limiting social contacts mainly hit the hospitality sector and business in the fields of leisure and tourism. Now that a hard lockdown has been put in place, other sectors are also affected. The cautious export expectations chiefly reflect the force of the second pandemic wave that has hit a number of European countries. Altogether, it is likely that economic growth in Germany in Q4 will be much dampened.