FX.co ★ German economy to face devastating consequences due to lockdown

The German economy is balancing on a tightrope with a pole trying not to crash down. However, its position is getting wobblier as quarantine restrictions remain in force. For this reason, it may face extraordinary risks in the near future. Even the Deutsche Bundesbank is warning local authorities of a serious setback if tough restrictive measures are extended due to the coronavirus pandemic.

"If infections failed to ease significantly and current restrictions on economic activity were to persist or even be tightened, there could be a sizeable setback," the Bundesbank said.

The regulator called the economic results of the last three months of 2020 an alarming signal. The slight rebound in the construction and manufacturing sectors was fully offset by a major drop in the retail and hospitality sectors. As a result, the economy did not expand an inch.

Until January 31, a strict quarantine regime is in place in Germany. Chancellor Angela Merkel called on all residents of the country to reduce social contacts to an absolute minimum. According to experts at the central bank, the extension of restrictions will be disastrous for the economy. If in September, Germany was the only country in the eurozone that showed stable economic growth. However, at the beginning of the new year, the economy may slump considerably. "These encouraging signals about the resilience of the German economy give hope that restrictions on economic activity, extended and tightened at the start of the new year, should not overly delay the recovery," the central bank said.