Germany’s economy: the recession pandemic was not as bad as that of 2009

Germany’s economy: the recession pandemic was not as bad as that of 2009

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The country’s Federal Statistics Office on Thursday predicted a 5% contraction in 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, the agency said in a statement.

Almost all of the main sectors, with the exception of construction, fell last year.

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

But the more shallow-than-expected drop in GDP demonstrates the value of Germany’s industrial backbone, making it less dependent on services and consumption than countries like the United States, the United Kingdom, France, Italy and Spain.

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

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

“Germany’s superior performance reflects its comparatively light block during the first wave of Covid-19, low participation of tourism and hospitality in the economy, strong export sector and generous fiscal support,” added Capital Economics Chief Economist Andrew Kenningham .

Workers assemble the new ID.4 at a Volkswagen factory in Zwickau, Germany. Motor vehicles were Germany's main export product in 2019, according to official data.
The German government approved a € 130 billion ($ 158 billion) stimulus package in June to stabilize the economy and start the recovery. It also kept unemployment under control thanks to short-term work programs – subsidized by the State – which allow companies to reduce employees’ hours and wages.
The pandemic brought an abrupt end to job creation after 14 years of uninterrupted growth, according to the statistics agency. Germany cut 477,000 jobs from 44.8 million in 2020, bringing the unemployment rate to 4%. This is a far cry from the United States, where millions of workers remain unemployed and the unemployment rate was 6.7% in December.

The short-term outlook for Germany’s economy is less bright, however.

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

“While it currently appears that the German economy 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, ING’s global head of macroeconomic research, wrote in a note.

“Economic activity is expected to decline again in the first quarter,” added Kenningham. “While manufacturers are expected to continue to benefit from strong external demand, the space for growth to recover will decrease as production approaches pre-pandemic levels.”

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Still, economists expect GDP to increase sharply when vaccines are more widespread and the warmer climate means that people spend more time outdoors, where the virus is less easily spread.

The blockages also boosted domestic savings, which could further stimulate the economy if households spend part of the extra money, said Krämer of Commerzbank.

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

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