German economy at risk of 'sizeable setback' if curbs extended: Bundesbank

FILE PHOTO: The skyline with its financial district is photographed during sunset as the spread of the coronavirus disease (COVID-19) continues in Frankfurt, Germany, October 26, 2020, REUTERS/Kai Pfaffenbach/

FRANKFURT (Reuters) – The German economy is managing to stay afloat but could suffer a “sizeable setback” if coronavirus curbs are extended again, the Bundesbank said on Monday.

Germany has taken increasingly tight measures, such as closing some schools and shops, to curtail movement and gatherings since the autumn as it battles a second wave of infections.

Chancellor Angela Merkel wants “very fast action” to counter the spread of COVID-19 mutations and has brought forward a meeting with regional leaders to this week to discuss tougher restrictions.

The central bank said the economy should be able to hold its ground in the face of existing curbs but could hit reverse if the measures are extended or tightened.

“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 in its monthly report.

Health Minister Jens Spahn has already said Germany will not be able to lift all curbs at the beginning of February.

The Bundesbank said the economy likely stagnated but did not shrink in the last three months of 2020 as a rebound in industry and construction made up for a slump in hospitality and retail.

“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.

It also cited the recently struck Brexit deal as positive for trade.

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