German economy shrinks by 2.2 percent

The consequences of the pandemic are also having a devastating effect on German companies. Compared to other European countries, the Federal Republic has so far got away with a black eye.

Dhe coronavirus pandemic had a dramatic impact on the economy of the Federal Republic of Germany in the first three months of this year. The gross domestic product fell by 2.2 percent compared to the previous quarter, as the Federal Statistical Office has just announced. This is the sharpest decline in German economic output since the financial crisis more than ten years ago.

Compared to other large economies in the European Monetary Union, Germany has got away with it with a black eye. According to the first estimate by the European statistical office Eurostat, economic output in the euro area fell by 3.8 percent in the first quarter – faster than ever before. The French economic output decreased by 5.8 percent, the Spanish by 5.2 percent, the Italian by 4.7 percent.

From the second half of March, the measures adopted by the federal government to contain the corona pandemic brought the economy to a standstill in large parts. These two weeks were enough to destroy the initially robust start to the year and the associated hope for economic recovery. In the past year 2019, the German economic output grew by only 0.6 percent due to the weakness of the industry and in the fourth quarter scarcely missed a technical recession, which economists speak of when the economy shrinks for two quarters in a row.

The economy was primarily supported by consumption. According to the Federal Statistical Office, however, the corona restrictions have slowed the former draft horse. Investments in equipment and foreign trade also decreased significantly in the first quarter. According to statisticians, on the other hand, government consumer spending and construction investments had a stabilizing effect.

Even though the good start to 2020 may have prevented anything worse, the GDP figures from the first quarter are a harbinger of what the German economy still has to do in the second quarter. The leading indicators, such as incoming orders or the Ifo business climate index, point to a collapse in economic activity in April. Most economists therefore expect gross domestic product to decline by more than 10 percent in the second quarter.

The first easing has come into effect in the past few weeks and the economy is slowly picking up again. But it will take some time before normality returns – especially in the areas that the crisis hit particularly hard. For example, restaurants and hotels are gradually allowed to reopen, but due to the strict security precautions they do not serve and accommodate as many guests as usual.

Large events are completely prohibited until the end of August. “Social distancing will dampen the upswing on the supply side and put pressure on demand, since the social activities of consumers will probably not reach pre-crisis levels anytime soon,” according to a study by Deutsche Bank.

Even if the economy should gradually pick up speed again in the second half of the year, the federal government is currently anticipating a minus of 6.3 percent for the year as a whole. That would be the deepest break in post-war German history. The EU Commission expects economic output in the euro zone to fall by 7.7 percent.