US, WASHINGTON (ORDO NEWS) — The corona crisis plunged the German economy into recession. The gross domestic product (GDP) shrank in the first quarter by 2.2 percent compared to the previous quarter, as the Federal Statistical Office announced today in Berlin.
In a quarterly comparison, the decline was by far the largest since the global financial and economic crisis in 2009 and the second largest since German reunification. Economists are convinced that the worst is not over.
“Although the spread of the corona virus did not significantly affect economic performance in January and February, the effects of the pandemic are already serious for the first quarter of 2020,” the Wiesbaden statisticians noted. Exit restrictions, closed borders and businesses brought business to a large extent to a standstill from mid-March.
Consumer spending and exports collapsed in the first quarter. Companies invested significantly less in machinery, equipment, vehicles and other equipment. Increased building investment and government spending prevented the crash, according to the information.
According to new calculations by statisticians, economic output had already decreased by 0.1 percent in the final quarter of 2019 compared to the previous quarter. If economic output falls two quarters in a row, economists speak of a “technical recession”.
Economists expect the slump in the second quarter to be even more severe. Compared to other major economies in Europe, Germany has so far got off lightly, VP Bank chief economist Thomas Gitzel said. But: “The German economy still has its Armageddon ahead of it. In the second quarter, GDP will be hit even harder. In view of the economic data, something like an end-time mood may actually arise.”
With regard to the first quarter, the economic director of the Institute for the World Economy, Stefan Kooths, spoke of a “mild harbinger of an even larger slump in the second quarter”. Ifo economic expert Timo Wollmershäuser also anticipates that a large part of the impact will only be felt in April.
“The decline in economic output in the first quarter of 2020 is far from showing the true extent of the crisis.” Despite the gradual easing of government measures, economists expect the gross domestic product to collapse by up to 14 percent in the second quarter.
The demands for a government stimulus package are growing louder. “We have to be prepared for the fact that demand from abroad does not come back so quickly. It is therefore all the more important to strengthen domestic demand,” warned the economic director of the German Institute for Economic Research (DIW Berlin), Claus Michelsen. “A strong stimulus from an economic stimulus program will be necessary to avert even greater damage.”
According to the Federal Ministry of Economics, the decline in economic output will initially worsen in the second quarter. However, the recovery should start in the course of the quarter. “The measures taken by the federal government contribute to this. Nevertheless, the recovery process will extend over a longer period of time.” The federal government had launched extensive aid programs to cushion the economic consequences of corona.
For the whole of 2020, the federal government is anticipating the worst recession in post-war history. The economic output of Europe’s largest economy is therefore expected to shrink by 6.3 percent, although the economy is expected to pick up again in the second half of the year. In the global economic and financial crisis in 2009, Germany’s gross domestic product fell by 5.7 percent.
The global corona crisis with interrupted supply chains primarily affects exports, but also private consumption. The fear of short-time work or even job loss dampens the mood of consumers.
According to market researchers at GfK in Nuremberg, the consumer climate sank to a historic low. The corona pandemic could affect people’s buying mood for a long time: According to a GfK survey, one in three believes that their financial situation will deteriorate in the next twelve months.
In the past, the buying mood of consumers in particular had kept Europe’s largest economy going. Exports had already slowed in 2019 – burdened by international trade conflicts and the cooling of the global economy.
However, economists at Allianz expect the German economy to get through the crisis faster and better than many neighboring European countries. France was particularly hard hit in the first quarter, with economic output falling by 5.8 percent compared to the previous quarter.
In Spain, GDP fell by 5.2 percent, in Italy by 4.7 percent. Overall, the economic performance of the 19 euro countries fell by 3.8 percent, according to the statistics office Eurostat. This is the sharpest drop since records started in 1995.
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