Economy & Politics

German economy slumps dramatically

Economic performance in Germany has plummeted again. Photo: dpa / Ralf Hirschberger

The corona crisis plunges the German economy into a deep recession. Economic output shrank dramatically in the second quarter. Nevertheless, there are first bright spots.

Wiesbaden – At the height of the corona crisis, the German economy experienced an unprecedented slump. The gross domestic product shrank in the second quarter compared to the previous quarter by 10.1 percent, as the Federal Statistical Office announced in Wiesbaden in a first estimate on Thursday. It was the sharpest decline since the quarterly GDP calculations began in 1970. Economic output had already dropped significantly at the beginning of the year. Europe’s largest economy is in a deep recession.

According to the Wiesbaden authorities, exports and imports of goods and services collapsed significantly in the second quarter, as did private consumer spending and companies’ investments in equipment such as machines. The state, however, increased its consumer spending during the crisis.

Low point is likely to be reached

Economic output fell 11.7 percent year-on-year. The strongest decline so far compared to the same quarter of the previous year had been during the global economic and financial crisis of minus 7.9 percent in the second quarter of 2009.

Economists assume that the economy will pick up in the second half of the year, provided that the number of infections does not rise significantly again. The restrictions imposed on the economy and society due to the virus have been increasingly relaxed since May. According to the assessment of the German Institute for Economic Research (DIW), the signs are “clearly on recovery”. But it will probably take two years before the historic slump in spring is made up for.

According to the Deutsche Bundesbank, the low point of economic activity should have already been reached in April. The economic recovery is likely to continue in the second half of the year. “The economic stimulus package that was decided last will also contribute to this,” the experts wrote in the latest monthly report.

Worst recession since the end of World War II

The Federal Government has launched a stimulus package totaling 130 billion euros for 2020 and 2021. Among other things, VAT was reduced for half a year from July 1: from 19 to 16 percent and 7 to 5 percent. This is intended to boost consumption as an important pillar of the economy.

According to GfK consumer researchers, the first effects are already showing. “The propensity to buy has risen very sharply,” said consumer researcher Rolf Bürkl when he presented the consumer climate study for July. “Consumers apparently plan to move ahead with planned major purchases, which will help consumption this year.”

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The mood in companies has also brightened. The Ifo Business Climate Index rose for the third consecutive month in July.

Despite the expected recovery for the year as a whole, the Federal Government is anticipating the worst recession since the end of the Second World War. Most recently, it assumed a decline in gross domestic product of 6.3 percent. Other predictions are similarly bleak. In the global economic and financial crisis in 2009, German GDP shrank by 5.7 percent.

Current news, interesting background information and useful tips – in our dossier we bundle all articles about Corona.


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