The Bundesbank said today that the German economy is likely to contract sharply in the first quarter of this year, as due to pandemic restrictions the service sector has suffered significantly and the development of the construction industry has slowed down. Experts point out that a hike in sales tax, which was temporarily cut last year, likely contributed to a significant reduction in construction volumes in January. In its monthly report, the German central bank did not update its forecast for the spring economic recovery and dropped references to the coronavirus vaccination campaign, which was undermined by news of possible side effects. The authorities had previously expected the economy to recover in the spring thanks to a decrease in the incidence of coronavirus and mass vaccinations. The regulator also noted that measures to contain the pandemic in the current quarter are on average more stringent than in the previous one, so a stronger decline in economic production can be expected. Industrial production also declined in the first month of the year, but orders were high and merchandise exports increased.
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