Germany: GDP contracts at quickest rate in over a decade in Q1
May 15, 2020
Covid-19 has left a deep mark on the German economy in the first quarter of the year, pushing the economy into a technical recession, and worse is still to come. The economy is expected to contract at a much steeper pace in the second quarter after registering the worst performance since Q1 2009.
In the three months ending in March, the economy contracted 2.2% quarter-on-quarter on a price-, seasonally- and calendar-adjusted basis (Q4: -0.1% qoq; previously reported: 0.0% qoq), according to preliminary data. Compared to the same quarter a year prior, the economy shrank 1.9% (Q4: +0.2% yoy).
While detailed quarterly data is set to be released on 25 May, available data suggests that both private consumption and fixed investment expenditure contracted in the face of the pandemic and subsequent containment efforts. On the other hand, robust growth in government spending softened the blow. On the external front, exports and imports contracted markedly.
The full impact of restrictive measures will be felt in the second quarter. Unemployment jumped in April and consumer sentiment deteriorated markedly in April–May, boding ill for private consumption. Taking the year as a whole, the German economy is now forecast to contract at the steepest rate in many decades as Covid-19 extinguishes both domestic and foreign demand and activity—although mobility data shows that domestic activity picked up by mid-May.
Carsten Brzeski, chief Eurozone economist, commented: “Contrary to the 2008/9 crisis, out of which Germany emerged faster and stronger, the economy entered the current crisis with more structural weakness. […] Consequently, the destiny of the German economy and its recovery depends more than ever on fiscal policy. Up to now, the government’s fiscal reaction has been much faster and stronger than in 2008/9. To ensure a lasting recovery, however, more stimulus will be needed.”
Author: Jan Lammersen, Economist