The German economy contracted at a more severe pace than previously forecast, on the back of coronavirus-driven lockdowns and restrictions that were put in place to combat recurrent waves of the pandemic. Eurozone’s most powerful economy contracted by 1.8% during Q1 2021 after experiencing growth over the previous two quarters, worse than the 1.7% contraction estimated by Destatis.

The severe contraction was driven by a slump in domestic consumption levels as citizens were forced to remain indoors and several businesses remained closed in a bid to contain the spread of infection. Private consumption contracted by 5.4% during Q1 2021, as per data released by the Destatis.

On a positive note, however, the German economy is expected to post a sharp rebound after reopening from the latest round of lockdowns put in place to contain the third wave of coronavirus. The Ifo business confidence index among German businesses improved to 99.2 in May from 96.6 during April.

The improvement in business confidence aligns with official estimates for a rebound during the second quarter of the year, forecast by Germany’s central bank – Bundesbank. While the central bank has expressed optimism about a rebound to pre-pandemic levels of growth by as soon as Q3 2021, the government expects Germany’s economy to grow by around 3.5% through the current year.