Germany: GDP contracts at record-steep pace in Q2 due to Covid-19
July 30, 2020
In the second quarter, the economy contracted at the steepest pace since at least 1970, when quarterly calculations were first recorded. In the three months ending in June, GDP plunged a historic 10.1% quarter-on-quarter on a price-, seasonally- and calendar-adjusted basis, markedly worse than the first quarter’s 2.0% fall. Compared to the same period a year prior, output nosedived 11.7% (Q1: -1.8% yoy).
While detailed quarterly data is set to be released on 25 August, preliminary data suggests that Covid-19 and associated containment measures hammered both domestic and foreign demand. On the domestic front, the unemployment rate continued to rise throughout the quarter and consumer sentiment remained pessimistic through June, which, in conjunction with restrictive measures, will likely have weighed on household spending. Moreover, the general uncertainty and pessimistic business sentiment should have weighed on fixed investment, although an expected ramp-up in government consumption should have softened the overall blow to domestic demand. In tandem, the external sector is also likely suffered in the quarter, with foreign lockdowns and falling demand suppressing exports.
Looking ahead, economic activity is expected to rebound in the second half of the year as restrictive measures are eased and the economy reopened. However, the balance of risks is skewed to the downside, with the possibility of a second wave of infections posing a key downside risk. Despite the expected recovery in activity, the German economy is still forecast to contract at the steepest pace in many decades this year.
Carsten Brzeski, chief Eurozone economist at ING Germany, noted:
“This picture shows the deepest but also the shortest recession ever. All monthly indicators since May have already pointed to a strong rebound of economic activity in the course of what has been the worst quarterly performance ever. […]. The worst quarter ever could be followed by the best quarter ever. However, the rebound will be uneven.”
Author: Jan Lammersen, Economist