German economy: pandemic recession was not as severe as in 2009

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The country’s Federal Statistical Office forecasts Thursday a 5% contraction of the economy in 2020 compared to the previous year, based on provisional GDP estimates. By comparison, Europe’s largest economy shrank 5.7% in 2009 during the recession that followed the financial crisis, he said in a statement.

Almost all major sectors, except construction, suffered a decline last year.

Household spending has fallen and business investment has fallen the most since the financial crisis. Exports and imports of goods and services fell for the first time since 2009, falling by 9.9% and 8.6% respectively.

But the smaller-than-expected decline in GDP demonstrates the value of Germany’s industrial backbone, which makes it less dependent on services and consumption than countries like the US, UK, France, Italy and Spain.

“Apparently, the strength of the export-oriented manufacturing sector has offset the effects of the lockdown,” Commerzbank chief economist Jörg Krämer wrote in a note to clients on Thursday.

The German government has closed restaurants, bars and clubs for the second time from early November in a bid to curb the increase in coronavirus cases. Non-essential businesses, services and schools were closed in mid-December and remain closed.

“Germany’s outperformance reflects its relatively light hold in the first wave of Covid-19, its low share of tourism and hospitality in the economy, a strong export sector and generous tax support,” added Andrew Kenningham, chief economist at Capital Economics.

Workers assemble the new ID.4 at a Volkswagen plant in Zwickau, Germany. Motor vehicles were Germany's main export in 2019, according to official figures.
The German government approved a stimulus package worth 130 billion euros ($ 158 billion) in June to stabilize the economy and revive the recovery. He also brought unemployment under control through partial unemployment programs – subsidized by the State – which allow companies to reduce the hours and wages of employees.
The pandemic brought job creation to an abrupt halt after 14 years of uninterrupted growth, according to the statistical agency. Germany cut 477,000 out of 44.8 million jobs in 2020, raising the unemployment rate to 4%. That’s a far cry from the United States, where millions of workers are still unemployed and the unemployment rate was 6.7% in December.

The short-term outlook for the German economy is less encouraging, however.

Lockdown restrictions remain in place and German Chancellor Angela Merkel warned this week that they may not be eased for several weeks.

“While it currently appears that the German economy has avoided a black eye in the last quarter of 2020, it is difficult to see how it can perform the same magic again in the first quarter,” Carsten Brzeski, global head of macroeconomic research ING, wrote in a note.

“Economic activity is expected to decline again in the first quarter,” Kenningham added. “While manufacturers are expected to continue to benefit from strong external demand, the scope for catching up with growth will diminish as production approaches its pre-pandemic level.”

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Still, economists expect GDP to rise sharply once vaccines become more widespread and warmer weather means people are spending more time outdoors, where the virus spreads less easily.

The lockdowns have also boosted domestic savings, which could further boost the economy if households spend some of the extra money, Commerzbank’s Krämer said.

This should allow Germany’s GDP to return to its pre-pandemic level by the last quarter of 2021, six to nine months ahead of the wider European economy, Kenningham added.

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