The German economy has shrunk at the fastest pace since the financial crisis more than a decade ago as the lockdown imposed to combat coronavirus brought many activities to a standstill, plunging Europe’s largest economy into recession.
German first-quarter gross domestic product shrank 2.2 per cent from the previous quarter, the national statistics agency said on Friday — slightly less than most economists had expected and better than many other eurozone economies.
It is the biggest quarterly decline in German GDP since the first quarter of 2009, when it shrank 4.7 per cent in the wake of the financial crisis.
The statistics agency also revised down its figure for fourth-quarter 2019 GDP, from zero to a decline of 0.1 per cent, meaning that Germany is now officially in recession, which is defined as two consecutive quarters of negative growth. It said its initial estimate for the first quarter of 2020 was likely to be subject to “larger revisions than usual” due to disruption from the virus.
German industrial production tumbled by a record 11.6 per cent year-on-year in March, when the lockdown forced factories to close and workers to stay at home.
But Germany has been hit less than other major European economies, which imposed stricter lockdowns. The 19 countries in the eurozone suffered an overall 3.8 per cent contraction in the first quarter, preliminary data published last month showed. France’s economy did worst, shrinking by 5.8 per cent. Spain contracted by 5.2 per cent and Italy’s GDP fell 4.7 per cent.
The crisis is expected to cause a big jump in unemployment, despite European governments putting over 50m workers on subsidised short-term leave schemes. In the first quarter, the number of people employed in the EU fell by 0.2 per cent, the first time it has fallen for seven years, according to Eurostat.
The German statistics agency said on Friday that both household spending and investment in machinery and equipment fell sharply in the first quarter, but resilient government spending and construction activity “had a stabilising effect and prevented a larger GDP decrease”. Both imports and exports “saw a strong decline”, it added.
“Revenues in closure-affected retail saw their biggest fall since 2007,” said Albert Braakmann, head of national accounts at the agency. “Air traffic almost came to a standstill and the tourism industry suffered dramatic falls.”
Germany’s regional governments have been steadily easing their lockdowns this month, but economists say that despite this, the country is set for a record contraction in the second quarter. Deutsche Bank forecast the country’s economy would shrink 14 per cent in the April-to-June period and even after rebounding slightly later on, it would still end the year 9 per cent smaller.
“Looking ahead, things will get worse before they get better,” said Carsten Brzeski, economist at ING. “Incoming data will be worse, even though the worst might already be behind us.”
German social and economic activity fell to 60 per cent of its January level during the peak of the lockdown, but has already returned to more than 80 per cent, he added, citing Google mobility data.
Mr Braakmann said the volume of heavy-goods traffic on German toll roads had fallen 11 per cent in April, after dropping 6 per cent in March, indicating the economic downturn accelerated in the second quarter. He also pointed to the 15.6 per cent drop in new manufacturing orders in March, which he said was a key “leading indicator” for Germany’s economic performance in April.
The German recession is having a knock-on effect on its eastern neighbours, which had been the EU’s fastest-growing countries. The Slovak and Czech economies shrank by 5.4 per cent and 3.6 per cent respectively in the first quarter. Both countries are tightly linked to German supply chains, particularly in the car industry, and blamed falls in external demand for the contractions. Poland’s economy shrank by 0.5 per cent.
Berlin said on Thursday that the coronavirus crisis had blown a hole in the country’s public finances. This year’s tax take is set to fall by €81.5bn compared with 2019 — a 10 per cent decline — while spending ramps up and the government plans to take on €150bn of extra debt.
Europe’s largest economy had already been slowing before coronavirus struck. It barely grew at all in the last nine months of 2019 as its sprawling manufacturing sector was hit by the US-China trade war, turmoil in the carmaking sector and Brexit uncertainty.
With one of the continent’s most open economies — exports account for almost half of German GDP — it is likely to be hit hard by this year’s expected record drop in global trade.
“Close to 20 per cent of German value-added is generated via international supply chains, with the EU being the most important partner region,” said Katharina Utermöhl, economist at Allianz. “The uneven economic recovery in Europe could hence delay the supply chain reactivation of an ‘early opener’ like Germany in the most exposed sectors.”
Olaf Scholz, Germany’s finance minister, said on Thursday that the government was planning to unveil a big fiscal stimulus in June. He said that “the next step will be to reinvigorate the economy with targeted measures, so that industry, trade and commerce can get back into gear as [the shutdown] is eased”.
Additional reporting by James Shotter in Warsaw
