2021.01.1814:50:00UTC+00Bundesbank Warns Of Noticeable Setback If Covid-19 Does Not Subside, Lockdown Extended

The German economic recovery will face significant setback if the rate of coronavirus infections fails to ease and the lockdown restrictions are subsequently extended, the Bundesbank said in its latest monthly report released on Monday.

The economic recovery in the biggest euro area economy slowed down in the final three months of 2020 amid a resurgence in the Covid-19 infections. The government restored lockdown restrictions to battle the pandemic.

Bundesbank assessed that there was no major setback as economic activity continued to recover. Industry, construction and retail sales continued to recover until November.

"This would have counterbalanced the losses that are likely to have arisen as a result of the closings of the stationary retail trade ordered in December," the bank said.

Business confidence continued to improve in December, suggesting that the restrictions that were extended and tightened at the beginning of the new year will not set the economic recovery too far back.

"However, if the infection rate does not subside significantly and the current restrictions on economic activity last longer or are further tightened, a noticeable setback could nonetheless occur," the Bundesbank warned.

Official data showed that Germany's GDP decreased 5 percent in 2020, almost reaching the level of 2009, when economic output fell by 5.7 percent as a result of the global financial and economic crisis.

The bank expects the rate of inflation to be clearly positive again in January due to the introduction of CO2 emission certificates for the consumption of petroleum products and gas as well as the expiry of the reduction in VAT rates.