German central bank warned Monday Germany may move into a recession again, for the second time since the COVID-19 pandemic started in 2020.
According to Bundesbank, the output could be at a noticeable drop this quarter amid the worst-ever surge in cases in the largest economy of Europe. In the fourth quarter of 2021, the GDP fell by 0.7 percent and this means another fall may mean a tip into a technical recession.
Labor shortages in the country have been significant lately and several sectors were hit hard by the repeated pandemic waves.
However, amid the warning and crisis, it is true that business activity has picked up sharply in February and the private sector activity is on the rise.
IHS Markit purchasing managers' index data reveals composite PMI gauge jumped to 56.2 in February from 53.8 in January. The supply chain bottlenecks have been eased lately and the prices being charged are jumping high too. Some factories are suffering from staff absences due to the Covid infections.
Phil Smith from the IHS Markit said February saw a continuation in the economic momentum following a brief output growth stagnation in December 2021. The overall activity started rising since August and it was basically driven by the services sector.
The growth in France was witnessed to be the strongest since June 2021. It is the second biggest economy in Europe and both manufacturing and services sectors started picking up momentum.
The prices of goods and services jumped up in the euro area and this generated more pressure on the European Central Bank to intervene and take measures to check the over soaring inflation.
Andrew Kenningham from Capital Economics stated the rise in activities is a gesture to climbing output across the EU bloc. He said the supply chain problems are gradually wrapping up and particularly in Germany. However, the price pressures still have not eased.
BNP Paribas economist Amarjot Sidhu said the increase in prices may mean inflation could remain higher for longer as the impact on demand is yet to be visible.
New data reveals German manufacturers are facing the high cost of materials and the producer price index inflation was at 5 percent in the year to January. It is said to be the sharpest jump since reunification.
The energy costs witnessed the biggest rise and the jump was 66.7 percent in the period of twelve months. Analysts argue the situation may not be eased for consumers unless business houses find the costs coming down.
Last week, Germany started scaling back the pandemic restrictions even though the daily cases have hit a record high lately. The deaths have reduced compared to the last wave.