With plummeting of consumer spending, company investment and exports during the second quarter, the German economy contracted at its steepest rate on record for the period. This was during the peak of the novel coronavirus pandemic in the country. Gains made in the last 10 years have been wiped off by the hit.
There was a 10.1% quarter-on-quarter drop in gross domestic output from April to June for the largest economy of Europe, said the Federal Statistics Office of Germany. During the first quarter, the economy had contracted by only 2%.
This contraction was the steepest quarterly fall since record s had been kept by the office starting in 1970 and was worse than forecasts by economist and analysts. The statistics office said this contraction erased almost a decade of growth off the economy when adjusted for inflation, seasonal and calendar effects,
“Now it’s official, it’s the recession of a century,” said DekaBank economist Andreas Scheuerle. “What has so far been impossible to achieve with stock market crashes or oil price shocks was achieved by a 160 nanometre tiny creature named coronavirus.”
Separate data from the statistics office showed that there was also no growth in annual inflation in July in Germany which was a further sign of economic weakness, with consumer prices reporting their weakest reading in more than four years.
Seasonally adjusted figures for the entire year showed that there was an 11.7 per cent decline in gross domestic product from April to June
The office said that during the second quarter, there was a collapse in both exports and imports of goods and services along with household spending and investment in equipment. At the same time there was an increase in spending by the government.
The recovery of the German economy had already started at the end of April which means that one can expect a strong increase in output for the third quarter, said Commerzbank chief economist Joerg Kraemer.
“However, this does not change the fact that it will take the German economy a long time to return to its pre-crisis level,” Kraemer added.
In a silver lining for the economy however, there was an unexpected decline in unemployment in July in seasonally adjusted terms, according to data released by the Labour Office of the country. The number of unemployed people decreased by by 18,000 to 2.923 million people even though the rate of unemployment remained at 6.4%.
“The job market is still under pressure due to the coronavirus pandemic, even though the German economy is on a recovery course,” Daniel Terzenbach from the Labour Office said. Higher unemployment and job losses were prevented because of the massive use of short-time work, he added.
The state designed short-time program is one that aims to encourage companies and firms to retain employees on their payrolls during a downturn. The program also enables employers to shift employees to shorter working hours and is aimed to prevent shocks such as the one caused by the coronavirus crisis from resulting in mass unemployment.
(Adapted from Reuters.com)