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Germany poised for recession

German gross domestic product for the first quarter, released on Friday, is expected to give a taste of the shock inflicted by the coronavirus pandemic on Europe’s largest economy, before a much more brutal plunge in the spring.

German gross domestic product for the first quarter, released on Friday, is expected to give a taste of the shock inflicted by the coronavirus pandemic on Europe’s largest economy, before a much more brutal plunge in the spring.

(ASdN with AFP) – Even starting in mid-March, shortly before the end of the quarter, the restrictive measures are enough to depress activity: the experts cited by the financial analysis tool Factset predict a fall of 2, 1% of the German economy over this period compared to the previous quarter, and 2.5% over one year. Unheard of since the 2008 financial crisis.

Like all European countries, the German economy suffered a multifaceted shock. The containment decreed in the face of the health crisis paralyzed production in many sectors, greatly slowed down trade and curbed consumption. The second quarter, between the beginning of April and the end of June, should see a plunge of 10% of German GDP over a year, according to joint projections of the main economic institutes published in early April.

Overdue industry

Hope for a rapid rebound after a few weeks of slowdown has therefore dissipated and, despite the easing of restrictions in May, the pandemic should weigh on the economy throughout the year. For 2020, the German government forecasts a 6.3% recession, the strongest since the calculations began in 1970. And the pandemic should cut tax revenues by nearly 100 billion euros compared to the previous forecast. October, said the Minister of Finance on Thursday.

“After ten years of growth, the consequences of the pandemic” pose “a great economic and political challenge,” said Minister of Economy Peter Altmaier at the end of April. The export industry, a pillar of the German economic model, is particularly suffering, having already been weighed down in 2019 by trade tensions and concerns linked to Brexit. In March, industrial production fell 9.2% over a month, unheard of since 1991, according to the federal statistical office Destatis.

The automotive sector has also stalled: registrations collapsed in March by 37.7% year on year. In April, Germany produced 97% fewer cars in one year. The industrial conglomerates are also struggling, Thyssenkrupp and Siemens having seen a sharp decline in their net results at the start of the year, victims of a drop in demand in many client sectors, including the automotive industry.

Towards a rebound?

The German airline Lufthansa, the leading European airline group, is also currently losing a million euros “per hour” due to the fall in air traffic. For its part, the world number one in tourism TUI, is preparing to cut 8,000 jobs.

With the reopening in May of stores and a number of public places, the objective is now to accelerate economic recovery. Berlin forecasts a rebound as early as 2021, with expected growth of 5.2%, hoping to return to production levels in 2019 in 2022. “Germany will emerge from the crisis faster and more vigorously than other western countries”, because she “spent more money to save her economy” and was “less affected” by the virus, predicts Carsten Brzeski, economist at ING Germany.

To face the crisis, Berlin has turned its back on budgetary austerity, adopting an ambitious plan of public loan guarantees and direct aid to companies, representing a volume of 1.100 billion euros. But the economy “can only recover if Germany’s main trading partners”, including “its European neighbors”, China and the United States, “return to growth”, underlines Jens-Oliver Niklash, economist for LBBW bank. A condition that is all the more delicate to fulfill since the coronavirus fuels Sino-American tensions, which could, as in 2019, lead to global trade, and the activity of the German export industry.

Germany is moreover “structurally weaker” than ten years ago, during the “crisis of 2008/2009”, estimates Carsten Brzeski. Even before the pandemic, GDP grew by only 0.6% in 2019, held back by the difficulties of the industry. Sign of the uncertainties of the recovery, the manufacturer Volkswagen announced Wednesday to interrupt for a few days certain assembly lines, just reopened in May, due to weak automotive demand.


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