German business mood bright despite drop in GDP

Germany's economy fell more than previously thought in the first quarter as coronavirus restrictions curbed consumption, but business confidence has since soared on hopes of a quick recovery, data showed Tuesday.

After two quarters of growth, GDP fell by 1.8 per cent between January and March, national statistics office Destatis said in a statement, revising down its initial prediction of a 1.7 per cent drop.

It was well below pre-pandemic levels, with Covid-19 curbs leading to a 5.4 per cent drop in private consumption, according to the data.

"Needless to say, the worst quarterly performance of the German economy since reunification was mainly the result of stricter lockdown measures since mid-December," said ING economist Carsten Brzeski, adding that harsh winter weather and a longer-than-usual Christmas break were also factors.

Yet he also added that  "the potential for a surge in the second quarter has increased", as Germany's vaccination campaign speeds up and the economy begins to open up after months of lockdown.

Hopes that Europe's largest economy will soon rebound after a damaging third wave of the pandemic were reflected in a surge in business confidence in May.

The Ifo institute's monthly barometer based on a survey of 9,000 companies climbed 2.6 points from April to 99.2 points in May, its highest value in two years.

"Companies were more satisfied with their current business situation. They are also more optimistic regarding the coming months. The German economy is picking up speed," Ifo president Clemens Fuest said in a statement.

Germany's Bundesbank central bank also predicted a second-quarter bounce last week, saying that Europe's largest economy could even surpass pre-pandemic growth levels from the autumn.

The German government's forecasts currently predict 3.5-per cent growth in GDP for 2021.

GDP shrank by five percent in 2020, its worst contraction since the financial crisis of 2009, due to economic fallout from the pandemic.