German economy: the pandemic recession was not as bad as in 2009

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The country’s federal bureau of statistics forecast a 5% contraction in the economy on Thursday in 2020 compared to the previous year, based on provisional GDP estimates. By comparison, Europe’s largest economy fell by 5.7% in 2009 during the recession following the financial crisis, a statement said.

Almost all major sectors, except construction, declined last year.

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

But the smaller-than-expected decline in GDP demonstrates the value of Germany’s backbone, making it less dependent on services and consumption than countries such as the United States, the United Kingdom, France, Italy and Spain.

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

The German government has closed restaurants, bars and clubs for the second time since early November, in an attempt to stop the growing number of coronavirus cases. Shops, services and non-essential schools were closed in mid-December and remain closed.

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

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The German government approved an incentive package worth EUR 130 billion ($ 158 billion) in June to stabilize the economy and start the recovery. It has also kept unemployment under control due to short-term work schedules – subsidized by the state – which allow companies to reduce the hours and salaries of employees.
The pandemic abruptly ended job creation after 14 years of uninterrupted growth, according to the statistics agency. Germany lost 477,000 jobs out of 44.8 million in 2020, raising the unemployment rate to 4%. It is far from the United States, where millions of workers remain unemployed and the unemployment rate was 6.7% in December.

However, the short-term outlook for Germany’s economy is less encouraging.

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

“Although it now 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,” said Carsten Brzeski, global head of macroeconomic research at ING. he wrote in a note.

“Economic activity is likely to decline again in the first quarter,” Kenningham added. “While producers should continue to benefit from strong external demand, the scope for increasing recovery will decline as production approaches its pre-pandemic level.”

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However, economists expect GDP to grow sharply once vaccines become more widespread and warmer weather means people spend more time outdoors, where the virus is less widespread.

The blockades have also boosted domestic economies, which could continue to hurt the economy if households spend some of the extra money, Krämer of Commerzbank said.

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

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