German Q1 GDP hit by VAT tax hike, Covid-19 restrictions

Germany's economy fell back into contraction at the start of 2021, weighed down by the hit to construction and services from a value-added tax hike in January.

Also weighing on activity was the reimposition of Covid-19 mobility restrictions.

According to the Federal Office of Statistics (Destatis), in seasonally adjusted terms, Germany's gross domestic product shrank at a quarter-on-quarter pace of 1.7% over the first three months of the year (consensus: -1.5%).

Nevertheless, on a workday adjusted basis it was down by 3.0% year-on-year, which was in line with economists' forecasts.

Friday's release did not include a breakdown of the components of aggregate demand, but Destatis did say that private household consumption was particularly hard hit.

Net exports were also said to have grown.

Following Friday's release, Pantheon Macroeconomics's chief Eurozone economist, Claus Vistesen, kept his forecast for German GDP growth in 2021 unchanged at 2.8-3.0%.

"That said, risks are tilted to the upside for the Q1 GDP number, in light of what likely will be solid March data in industrial production and retail sales," Vistesen added.

"This ought to be reflected in today’s number, but even statisticians can’t see what hasn’t been released yet, in most cases."

At the euro area level meanwhile, Eurostat later reported that GDP shrank 0.6% quarter-on-quarter, which was ahead of the consensus for a 0.8% drop.