Germany Is Now In A Technical Recession, Pushed By The Virus Pandemic

The hit from the coronavirus pandemic has put the German economy – the largest in Europe, into a technical recession.

In the first quarter of 2020, there was a contraction 2.2 per cent in the German economy which was the worst since the global financial crisis of 2007-08.

Experts had expected a contraction to be around 2 per cent for the German ecinomy.

There was also a revision of 2019 fourth quarter figures from zero growth to a contraction of 0.1 per cent according to the latest data that has been released by the federal statistics authority Destasis on Friday.

That meant two consecutive quarters of economic contraction which technically has not pushed the German economy into a recession.

According to analysts, only a partial indication of the extent of damage the coronavirus pandemic has had on Europe’s largest economy was reflected by the first quarter figures. This is because the lockdown in Germany was implemented in Middle of March – just two weeks before the close of the first quarter. Therefore the first quarter numbers do not reflect the actual hit of the pandemic which came in later in April.

The German government had imposed restrictions to public life which resulted in the closure of almost all non-essential businesses, forcing shops and factories to close shutters, in an effort to prevent the spread of the coronavirus pandemic. These measures had been retained and kept in force through early May which is expected to have caused drastic slump in exports and consumer spending.

The German statistics agency said that there was a sharp decline in private consumer spending as well as spending on industrial equipment, including machinery and vehicles. Compared to the fourth quarter of last year, there was a drastic fall in both exports and imports.

Destasis said that the economy was partially stabilized by government spending and prevented the economy from sliding down further.

In the first quarter, there was however stability in the employment figures. The agency said that between January and March, there was only a “modest” effect on employment by the coronavirus outbreak, partially because of the reduced-working-hours program in the country which allowed companies to keep workers at home for much longer hours than usual and not lay them off.

Industrial exports is critically important for the German economy and this segment had been facing trouble even before coronavirus pandemic hit the country. Its industrial exports had been languishing because of the uncertainties surrounding Brexit and the US-China trade war. Between February and March, there was a drop of more than 9 per cent in industrial orders which marked the highest drop in the number since 1991. The economy recorded zero growth in the last quarter of 2019.

The government expects economic contraction to accelerate on the second quarter because of the coronavirus impact, said Germany’s Economy Minister Peter Altmaier. He however said that there was a palpable sign of a turnaround at the beginning of May.

(Adapted from DW.com)

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