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The German economy has slowed down at the fastest pace since the financial crisis more than a decade ago, as the blockade imposed to combat the coronavirus brought many activities to a standstill, leading to the recession of Europe’s largest economy.
First-quarter German gross domestic product contracted 2.2 percent from the previous quarter, slightly less than most economists expected and better than many eurozone economies, the national statistics agency said on Friday. .
It is the largest quarterly decline in German GDP since the first quarter of 2009, when it fell 4.7 percent in the wake of the financial crisis.
The statistics agency also revised down its fourth-quarter GDP figure from zero to a 0.1 percent decline, which means Germany is now officially in recession, defined as two consecutive quarters of negative growth. He said his initial estimate for the first quarter would likely be subject to “larger than usual revisions” due to the virus disruption.
German industrial production fell a record 11.6 percent year-on-year in March, when the shutdown forced factories to close and workers to stay home.
But Germany has suffered less so far than other major European economies, which imposed tighter blockades. All 19 eurozone countries suffered an overall contraction of 3.8% in the first quarter, preliminary data published last month showed. France’s economy fared worse, contracting 5.8 percent. Spain contracted 5.2 percent in the period and Italy’s GDP fell 4.7 percent.
The German statistics agency said on Friday that both household spending and investment in machinery and equipment fell dramatically in the first quarter, but resilient government construction and spending activity “had a stabilizing effect and prevented further declines in GDP “. Both imports and exports “saw a sharp decline,” he said.
Germany’s regional governments have been steadily easing their blockades this month, but economists say that despite this, the country is set for a record recession in the second quarter. Deutsche Bank predicted that the country’s economy would shrink by 14 percent in the April-June period and even after recovering a little later, it would end the year 9 percent smaller.
“Looking ahead, things will get worse before they get better,” said Carsten Brzeski, economist at ING. “The incoming data will be worse, even though the worst may already be behind us.”
German economic and social activity fell to 60 percent from its January level during the peak of the blockade, but has already returned to more than 80 percent, he added.
Berlin said Thursday that the coronavirus crisis had opened a hole in the country’s public finances. This year’s tax collection will drop by € 81.5 billion compared to 2019, a 10 percent decrease, even as spending increases and the government plans to take on an additional debt of € 150 billion.
Europe’s largest economy had already slowed down before the coronavirus struck. It barely grew in the last nine months of 2019, as its expanding manufacturing sector was hit by the U.S.-China trade war, turmoil in the auto manufacturing sector, and Brexit uncertainty.
“The shutdown is easing in May and June, but only gradually, and Germany’s recovery will be limited by problems in other parts of Europe,” said Jack Allen-Reynolds, an economist at Capital Economics.
With one of the most open economies on the continent, exports represent almost half of German GDP, it is likely to be more affected by the expected record drop in world merchandise trade.
Olaf Scholz, Germany’s finance minister, said Thursday that after deploying public funds to help workers and companies, “the next step will be to revitalize the economy with targeted measures, so that industry, commerce and trade can get going again. ” [the shutdown] Is relieved “.
