Germany’s economy: the recession of the pandemic was not as severe as 2009

Germany’s economy: the recession of the pandemic was not as severe as 2009

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The country’s federal statistics office on Thursday predicted a 5% contraction in the economy in 2020, compared to the previous year, based on preliminary GDP estimates. By comparison, Europe’s largest economy shrank by 5.7% in 2009 during the recession following the financial crisis, according to a statement.

Almost all major sectors, with the exception of construction, experienced a decline last year.

Household spending has tumbled and business investment has shrunk the most since the financial crisis. Exports and imports of goods and services declined for the first time since 2009, shrinking by 9.9% and 8.6% respectively.

But the slower-than-expected decline in GDP shows the value of Germany’s industrial backbone, making it less dependent on services and consumption than countries such as the United States, the United Kingdom, France, Italy and Spain.

“The strength in the export-oriented manufacturing sector has apparently offset the effects of the closure,” Commerzbank chief economist Jörg Krämer wrote in a note to customers on Thursday.

The German government has closed restaurants, bars and clubs for the second time since early November in an effort to curb an increase in cases of coronavirus. Non-essential shops, services and schools were closed in mid-December and remain closed.

“Germany’s better performance reflects its relatively slight exclusion during the first wave of Covid-19, a low share of tourism and hospitality in the economy, a strong export sector and generous fiscal support,” added Andrew Kenningham, chief economist at Capital Economics. .

Workers assemble the new ID.4 at a Volkswagen factory in Zwickau, Germany. According to official figures, motor vehicles were the largest exporting country in Germany in 2019.
In June, the German government approved a € 130 billion ($ 158 billion) stimulus package to stabilize the economy and begin the recovery. It also kept unemployment under control thanks to short-term work programs – subsidized by the state – which enables businesses to reduce employees’ hours and wages.
According to the statistics agency, job creation came to an abrupt end after 14 years of uninterrupted growth. Germany lost 477,000 jobs out of 44.8 million in 2020, raising the unemployment rate to 4%. It is far from the United States, where millions of workers remain unemployed and the unemployment rate in December was 6.7%.

However, the short-term outlook for the German economy is less encouraging.

Closing restrictions remain in place and German Chancellor Angela Merkel warned this week that it would not be facilitated for several weeks.

“While the German economy currently appears to have avoided a black eye in the last quarter of 2020, it is difficult to see how it can perform the same magic again in the first quarter,” said Carsten Brzeski, world head of macroeconomics. research at ING, wrote in a note.

“Economic activity is likely to decline again in the first quarter,” Kenningham added. “While manufacturers must continue to benefit from strong external demand, the room for catch-up growth will decline as production approaches the pre-pandemic level.”

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However, economists expect GDP to rise sharply once the vaccines are widespread and warmer weather means people are spending more time outdoors, where the virus can spread less easily.

Lockdown has also increased household savings, which could further accelerate the economy if households spend the extra money, Commerzbank’s Krämer said.

That could return German GDP to its pre-pandemic level in the last quarter of 2021, six to nine months ahead of the broader European economy, Kenningham added.

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