German finance ministry sees economy subdued in coming weeks under lockdown

The pandemic’s second wave has hit Germany hard.

January's economic performance was hit by the lockdown, with falls in practically all economic sectors and the nation's finance ministry sees economy subdued in coming weeks under measures to contain covid-19.

The finance ministry sees inflation close to January's 1.0% in coming months although say the leading indicators point to industry supporting the economy. The ministry also say that services have been impacted the most by the lockdown.

In recent data, however. the overall ifo Business Climate Index fell from 92.2 points in December 2020 to 90.1 points in January 2021, its lowest level since June 2020 when the German economy was coming out of the spring lockdown.

“Companies assessed their current situation as worse than last month. Their expectations were also more pessimistic. The second wave of coronavirus has brought the recovery of the German economy to a halt for now,” said ifo.

Germany’s coronavirus cases remain stubbornly high. The country’s health services have also been under severe pressure since December; unlike in the spring of 2020, Germany’s death toll has surpassed 1,000 on several days in January this year.

the pace for which the virus has spread through nation has forced its leaders to extend the 14 Jan lockdown until March 7, though schools and hair salons may open sooner, Chancellor Angela Merkel and leaders of the 16 federal states agreed on Wednesday.

Meanwhile, the International Monetary Fund said recently that Chancellor Angela Merkel’s administration should consider additional aid for companies and maintain support for the labour market to avoid a worse economic hit.

IMF staff predicted a “choppy” and unevenly distributed rebound that will only strengthen once Covid-19 vaccines have been widely distributed.

Market implications

It will be a blow to the risk-sensitive euro should China need to take measures to slow the spread of several coronavirus positive cases that have been recently transmitted locally, for Germany relies heavily on the nation's exports to the superpower.