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German economy is slumping on anti-virus curbs, Bundesbank says

FILE PHOTO: Picture shows the abandoned Kennedy Square due to the coronavirus disease (COVID-19) pandemic lockdown in downtown Essen, Germany, March 11, 2021. REUTERS/Wolfgang Rattay

FRANKFURT (Reuters) - The German economy is likely to shrink sharply this quarter as pandemic-fighting curbs hit the services sector and even the booming construction industry slows, the Bundesbank said on Monday.

In its latest monthly report, the German central bank seemed to abandon its expectations of a rebound in the spring and dropped references to the vaccination campaign, which has been plagued by delivery delays and news reports of possible side-effects, as a catalyst.

“The measures to contain the pandemic are more stringent on average in the current quarter than in the previous one,” the Bundesbank said. “Therefore, the economic output in the first quarter of 2021 is likely to decline sharply ... particularly in the contact-intensive service sectors.”

It added that an increase in sales tax, which had been temporarily cut last year, had probably contributed to a substantial decline in construction in January.

Industrial production also eased in the first month of the year but order intake was strong and exports of goods increased, the Bundesbank added.

Exports of goods to Britain were the exception, however, falling by almost a quarter in January, the first month after it left the European Union single market.

The Bundesbank had said in last month’s report that the economy would recover in the spring as coronavirus infections fell and vaccines were distributed.

Reporting By Francesco Canepa; Editing by Kevin Liffey