Germany’s gross domestic product fell at the fastest pace in half a century in the second quarter of 2020, according to preliminary data confirming the depth of the recession in Europe’s largest economy.
GDP contracted 10.1 percent quarter-on-quarter, the biggest decline since quarterly calculations began in 1970, and much larger than the fall at the height of the global financial crisis, the national statistical agency said Tuesday. His preliminary estimate of the second quarter’s annual decline in GDP, at 11.7 percent, was also the largest on record.
The contraction in production was worse than analysts had expected, and underscores the challenge facing European policy makers as fears grow about a second wave of infections that could delay economic recovery.
The drop in production had “eliminated almost 10 years of growth,” said Florian Hense, an economist at Berenberg, although he added that “it could have been much worse.” Germany’s blockade to contain the pandemic was smoother and shorter than in other European nations, and has a “vast” stimulus of fiscal and monetary policy in the pipeline, he said.
Germany’s statistics office said a “massive drop” in goods exports and imports, household spending and capital formation had been offset to some extent by higher government spending.
It also revised its previous estimate of first quarter GDP upward; Germany’s economy is now believed to have shrunk by 2 percent quarter-on-quarter at the beginning of the year, instead of 2.2 percent.
Carsten Brzeski, economist at ING, said the data “marks the high point of the crisis,” adding that “compared to the past few months, the next few weeks could feel like a pleasure trip.”
But Germany has been less affected by the virus than other European countries, and second-quarter production data due on Friday could reveal much deeper declines elsewhere in the continent. Analysts polled by Reuters expect the numbers to show a quarterly contraction of 15 percent in France and Italy, and 12 percent for the eurozone as a whole.
The European Commission’s monthly survey of economic sentiment increased in July for the third consecutive month, with the biggest gains in industry and services, suggesting that the continent’s economy has begun to recover from the depths of the recession.
But high-frequency data indicators suggest that the recent recovery in activity in Europe’s largest economies may be slowing and a recent surge in cases of the virus may also delay the recovery. The commission’s survey found that consumers remained gloomy in July.
Jessica Hinds, European economist at Capital Economics, said: “With the high-frequency data and consumer confidence, suggesting that the recovery in consumer spending is already slowing, sentiment and business activity may continue. example, especially if governments impose measures to curb the latest increase in virus cases. “
The labor market data released on Thursday reflected the uneven nature of the recovery.
Germany’s unemployment rate held steady at 6.4 percent in July, the seasonally adjusted figures from the Federal Employment Agency showed, with 18,000 fewer people out of work than the previous month.
The latest figures for Italy, for June, calculated on a different basis, showed that the unemployment rate increased 0.5 percentage points to 8.8%, as the relaxation of the closure measures allowed laid-off workers to start looking for work. The economic inactivity rate fell to 36.8 percent, from 37.1 percent the previous month.
The EU unemployment rate rose to 7.1 percent in June from 7 percent the previous month, Eurostat said. The number of people without work in the EU increased above 15 million; youth and women were disproportionately affected.
Job loss in Europe has been constrained by government schemes to subsidize wage costs, but analysts have warned that unemployment is likely to rise when governments begin to cut support in the second half of the year.
Monetary policy makers believe that fear of unemployment, coupled with continuing fears about infection risks, are likely to curb consumer demand and weigh on inflation across Europe. The data so far suggests that price increases have been limited to food and other staples.
German consumer prices contracted 0.5% monthly in July, from a 0.7% increase in the previous month, according to preliminary figures from the German Federal Statistical Office. The figure, released Thursday, was below the -0.2 percent forecast by a group of economists polled by Reuters. On an annual basis, inflation was flat.
Separate figures released by Spain’s National Statistics Institute on Thursday showed consumer prices fell 0.7 percent in July from a year earlier, more than expected after a 0.3 percent annual decline in June. .
The drop reflected lower energy prices and weak demand in sectors affected by the pandemic, while food and beverage prices increased.
