German economic output has reached an all-time low: compared to the first quarter, gross domestic product (GDP) fell by 10.1 percent and, adjusted for the previous year, by 11.7 percent, as the Federal Statistical Office announced. In addition to imports and exports, investments and private consumption have slumped. Only the state increased its consumer spending through the crisis measures.
This means that the economy is experiencing the greatest economic contraction since the beginning of the quarterly records 50 years ago. The current development at the time of the economic crisis in 2008/2009 more than doubled the current development: The strongest decline in German economic performance compared to the previous quarter has been a decrease of 4.7 percent in the first quarter of 2009.
At the beginning of the year, the gross domestic product had already dropped by 2.0 percent in the first quarter. Due to the measures to curb the corona pandemic and the associated economic restrictions, economists had recently expected an even more significant drop in the economy for Q2.
At the end of June, the Council of Experts expected a revised economic forecast for the macroeconomic development in its revised economic forecast of just under twelve percent compared to the final quarter of 2019. The Munich Ifo Institute expected an even greater decline of 11.9 percent in early July, the Institute for Global economy in Kiel in mid-June with a shrinkage of twelve percent. The current economic development is thus lagging behind some fears.
Recovery is emerging
This is also due to the gradual recovery that emerged in the following months despite the significant economic slowdown in April. Central indicators also point to an upward trend: The mood in companies has been gradually brightening since May, as the continuous growth of the ifo business climate index shows. A similar development can be seen in the buying mood of consumers. The GfK consumer climate index rose for the third time in a row in July – partly due to the reduction in VAT. The purchasing manager index also rose significantly to 47.0 points in June, slightly exceeding the previous forecast.
In mid-July, the Federal Ministry of Economics also reported: “The economic low point has passed”. Although the economic downturn in April was unprecedented, there had already been an upward trend in May. June also shows a “noticeable catch-up process, but capacities are still underutilized.” The outlook for the second half of the year is therefore more positive. The ministry expected positive economic growth from the third quarter, but was still cautious with optimism: “The catch-up process of the German economy is dynamic, but is only just beginning.”