How coronavirus has pushed Germany into a recession

How coronavirus has pushed Germany into a recession
The sun sets in April in Hamburg's port behind raised container gantry cranes that normally unload ships. Photo: DPA
German output shrank by 2.2 percent in the first quarter of 2020, official data showed Friday, as the coronavirus pandemic tipped Europe's top economy into a recession.

The quarter-on-quarter contraction is “the worst since the financial crisis” in 2009, federal statistics office Destatis said.

The agency also revised its gross domestic product (GDP) figure for the final quarter of 2019 from zero growth to a contraction of 0.1 percent, meaning Germany has now experienced two consecutive quarters of contraction — the technical definition of a recession.

German Economy Minister Peter Altmaier last month warned that the country was facing “the worst recession” in its post-war history as the pandemic batters the global economy.

READ ALSO: Germany braces for 'worst recession' in post-war history

Like other European countries, Germany closed factories, shops and restaurants forced many workers to stay at home to curb the outbreak from mid-March.

Export-reliant Germany is also hard hit as international trade and travel are curtailed.

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“Private consumption, exports and investments in equipment shrank considerably as a result,” the German economy ministry said in a statement.

The second quarter is likely to show an even bigger slump before a recovery gets under way, it added.

State consumption and the construction industry were the only growth drivers in the first three months of the year.

READ ALSO: Which German industries have been hardest hit by the coronavirus?

“Two weeks of lockdown as well as supply chain disruptions on the back of lockdown measures elsewhere brought the German economy to its knees,” said ING-Diba economist Carsten Brzeski.

Some experts have predicted that the German economy could contract by around 10 percent between April and June.

Recovery hopes

But there are glimmers of hope on the horizon, with many experts saying Germany is well positioned to weather the storm.

The country's first quarter slump is smaller than steep GDP plunges seen in France and Spain, two of the countries hit hardest by the virus in Europe.

Berlin predicts the German economy will bounce back in 2021 and grow by 5.2 percent as the virus impact wanes and businesses reopen.

The country began easing lockdown restrictions in early May, allowing most shops to open again while restaurants and tourism also took their first tentative steps.

Factories too are restarting their production lines.

“The timing of the lifting of the lockdown measures as well as the huge fiscal support by the German government… support the view that the German economy could leave the crisis earlier and stronger than most other countries,” Brzeski said.

To help the country through the COVID-19 crisis, Chancellor Angela Merkel's government has ditched its cherished policy of maintaining a balanced budget.

It has launched an ambitious rescue package worth €1.1 trillion that includes state-backed loan guarantees, cash injections and schemes to put workers on reduced hours to avoid layoffs.

READ ALSO: Bundestag approves historic coronavirus rescue package

Several big-name firms such as sportswear maker Adidas, Condor airline and travel firm TUI have already received hundreds of millions of euros in government-backed loans, while Lufthansa is still negotiating a potential bailout.

But the economy will only rebound if Germany's biggest trading partners are also doing well, warned Jens-Oliver Niklash, an analyst for LBBW bank.

In a sign of more difficult times ahead, carmaker Volkswagen said Wednesday that it would suspend production again on some lines that had only just reopened. The demand for cars is simply not there, it said.


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