German economy on point of recession due to Covid restrictions, says central bank

The Bundesbank said on Monday the latest wave of the coronavirus pandemic risked pushing the German economy - Europe's largest - into a technical recession before staging a recovery from the second quarter.

German economy on point of recession due to Covid restrictions, says central bank
The headquarters of the Bundesbank in Frankfurt. Photo: dpa | Arne Dedert

After gross domestic product shrank by 0.7 percent in the last quarter of 2021, “overall economic output could again sink noticeably in the first
quarter of 2022, before picking up speed again in the spring,” the German central bank said in its monthly economic report.

Pandemic restrictions were mostly to blame for the drop, the Bundesbank said, with measures “hitting some service-sector branches hard”.

Manufacturing, meanwhile, continued to report “serious” problems with a lack of raw materials and components, as well as a shortage of labour.

“The pick-up in industrial production, however, suggested a certain easing” in the supply situation at the end of 2021, the central bank said.

A recession is technically defined as two consecutive quarters of economic contraction.

Germany’s European neighbours have seen their economies recover more strongly from the initial impact of the pandemic.

Germany registered 2.8 percent growth in 2021, while France surged ahead with growth of seven percent.

The spread of the Omicron variant in Germany led to a record number of infections at the start of the year.

The government has said it will start to roll back health restrictions as the cases begin to ebb, with most rules lifted by the end of March under the plan.

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France, Germany, Spain and Italy to sidestep Hungary on global tax plan

Germany, France, Spain, Italy and the Netherlands said Friday they would implement an international minimum tax on big corporations, sidestepping Hungary's opposition to an EU-wide plan.

France, Germany, Spain and Italy to sidestep Hungary on global tax plan

The decision by the top European economies effectively ends months of effort to implement the tax jointly across all 27 member states.

The 15-percent minimum tax was one of two pillars of a major international agreement decided at the OECD and signed by more than 130 countries, including Hungary and the United States.

“Should unanimity not be reached in the next weeks, our governments are fully determined to follow through on our commitment,” the countries said in a joint statement.

“We stand ready to implement the global minimum effective taxation in 2023 and by any possible legal means,” the countries added.

French Finance Minister Bruno Le Maire, who initiated the joint text, said that “tax justice must be a priority for the European Union”.

“We will put in place minimum taxation from 2023, either through the European route or through the national route,” said Le Maire.

Christian Lindner, his German counterpart, said Germany will “if necessary” adopt the tax “independently of an agreement at the European level”.

The EU’s original ambition was that the 27-member bloc would be the first jurisdiction to implement the OECD-brokered agreement. The bloc-wide plan needed the vote of all EU countries in order to pass.

The resistance by Hungary came as the relationship with its EU partners remained fraught, with Budapest along with Warsaw seen as steering away from the bloc’s democratic values.

The Hungarian veto of the minimum tax is seen by many in Brussels as a means of pressure to obtain the release of seven billion euros ($7.3 billion) in grants planned under the European pandemic recovery plan.

Poland’s acceptance of the minimum tax came after Brussels accepted Warsaw’s recovery plan, which should see it receive 36 billion euros in grants and loans over the next several years.