Coronavirus plunges Germany into recession

US, WASHINGTON (ORDO NEWS) — The Germany officially entered recession in the first quarter, with a fall of 2.2% of gross domestic product (GDP) caused by the coronavirus pandemic before a much more brutal plunge expected in the spring.

The country is already in a “technical” recession, ie two consecutive quarters of GDP contraction, after the institute revised down its estimate of GDP in the last quarter of 2019, to -0.1%, against 0% originally announced.

Germany is experiencing its “worst result since the economic crisis” of 2008-2009 and its “second worst” since Reunification in 1990, comments the statistical institute Destatis, which published these figures on Friday.

About ten days were enough to bring the first economy in the euro zone to its knees: the restrictive measures aimed at stemming the pandemic, at the cost of a strong impact on activity, began in mid-March, at the end of the quarter .

“Now we officially know what such containment costs: about one to two percent a week,” said Jens-Oliver Niklash, economist at LBBW.

And “this is only the beginning”, summarizes the economist Carsten Brzeski, of the ING bank , since the pandemic should logically affect much more violently the second quarter, at the height of the containment measures.

Between the beginning of April and the end of June, Germany should experience a plunge of 10% of its GDP over a year, unprecedented for fifty years, according to joint projections of the main economic institutes.

Overdue industry

Like all European countries, the German economy suffered a multifaceted shock, since the containment decreed in front of the health crisis paralyzed the production of many sectors, strongly slowed down trade and curbed consumption.

For 2020 as a whole, the German government forecasts a 6.3% recession, the strongest since the statistics began in 1970.

And the pandemic should cut nearly 100 billion euros in tax revenue compared to the previous forecast in October, said the Minister of Finance on Thursday.

The export industry, pillar of the German economic model, is suffering particularly, after having already been weighed down in 2019 by trade tensions and concerns linked to Brexit .

In March, industrial production fell 9.2% over a month, unheard of since 1991, according to Destatis.

The automotive sector is in disaster: registrations collapsed in March by 37.7% over a year, the worst fall in 30 years. In April, Germany produced 97% fewer cars in one year.

Industrial conglomerates are also struggling, since Thyssenkrupp and Siemens see demand drop in many client sectors.

The German company Lufthansa is currently losing a million euros “per hour” because of the fall in air traffic, when the world number 1 in tourism TUI, is about to cut 8,000 jobs.

What rebound?

With the reopening in May of stores and a number of public places, the objective is now to accelerate the recovery. Berlin forecasts a rebound as early as 2021, with expected growth of 5.2%, hoping to return to production levels in 2019 in 2022.

“Germany will emerge from the crisis faster and more vigorously than other western countries” because it “spent more money to save its economy” and was “less affected” by the virus, predicts Carsten Brzeski.

To face the crisis, Berlin has turned its back on budgetary austerity, adopting an ambitious plan of public loan guarantees and direct aid to companies, representing a volume of 1.100 billion euros.

But the economy “can only recover if (its) main trading partners”, including “its European neighbors”, China and the United States, “return to growth,” said Jens-Oliver Niklash.

A condition all the more delicate to fulfill since the coronavirus fuels the Sino-American tensions, which could, as in 2019, lead to global trade, and the German export industry.

Germany is moreover “structurally weaker” than ten years ago, during the “crisis of 2008/2009”, estimates Carsten Brzeski. GDP only increased by 0.6% in 2019, held back by the difficulties of the industry.


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