COVID-19 plunges German economy into record recession

BERLIN – The German economy contracted at its steepest rate on record in the second quarter as consumer spending, company investment and exports all collapsed during the peak of the COVID-19 pandemic, wiping out nearly 10 years of growth.

The Federal Statistics Office said gross domestic output in Europe’s largest economy shrank by 10.1% quarter-on-quarter from April to June after a revised 2.0% contraction in the first three months of the year.

The plunge was the steepest since the office began collecting quarterly growth data in 1970 and was worse than the 9% contraction predicted by economists. Adjusted for inflation, seasonal and calendar effects, it erased almost a decade of growth, the statistics office said.

On the year, gross domestic product declined by 11.7% from April to June, seasonally adjusted figures showed.

Both exports and imports of goods and services collapsed in the second quarter, as did household spending and investment in equipment, the office said. But state spending increased.

Giving a rare ray of light for the economic outlook, unemployment unexpectedly declined in July, separate data from the Labour Office showed on July 30.

The number of people out of work fell by 18,000 to 2.923 million people in seasonally adjusted terms, leaving the joblessness rate 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.

He added that the massive use of short-time work had helped to prevent higher unemployment and job losses.

Short-time work is a form of state aid designed to encourage companies to keep employees on the payroll during a downturn. It allows employers to switch employees to shorter working hours and is intended to stop shocks such as the coronavirus crisis from leading into mass unemployment.

The joblessness data boosted hopes that the labour market could get out of the crisis with no more than a black eye, which could support household spending.

The government hopes its stimulus package — worth more than 130 billion euro (US$153 billion), including a temporary VAT cut to boost domestic demand — will help the economy return to growth.

Overall, the government expects the economy to shrink by 6.3% this year and rebound with an expansion of 5.2% in 2021. This means that the German economy is unlikely to reach its pre-crisis level before 2022.