German economy shrinks by record 9.8% in second quarter - estimates

Reversal comes on foot of lockdown measures imposed to slow spread of coronavirus

Police officers stand in front of the Brandenburger Gate in Berlin, on Sunday. Photograph: Emile Ducke/The New York Times

Police officers stand in front of the Brandenburger Gate in Berlin, on Sunday. Photograph: Emile Ducke/The New York Times

 

Europe’s largest economy probably shrank by 9.8 per cent in the second quarter, its biggest decline since records began in 1970, due to the lockdown measures imposed to help slow the spread of the coronavirus, Germany’s leading institutes said on Wednesday.

That would be more than double the drop seen in the first quarter of 2009, when Germany was in the throes of the global financial crisis, the institutes said. Germany has been in virtual lockdown for several weeks. Schools, shops, restaurants and sports facilities have closed and many firms have stopped production to help slow the spread of the disease.

“It is not unlikely that the crisis will drag on longer than expected and lead to production being frozen,” said Timo Wollmershaeuser, economist at the Ifo institute - one of the think tanks involved in producing the report. “In this scenario the recession will be deeper and the recovery will be slower.

It will also be more difficult for the government to prevent businesses from going bankrupt,” he added. The top economic research institutes said the economy probably shrank by 1.9 per cent between January and March.

As Reuters previously reported from sources, they said the German economy is likely to shrink by 4.2 per cent this year and grow by 5.8 per cent next year. “The coronavirus pandemic is triggering a deep recession in Germany,” said the institutes, whose forecasts form the basis of the government’s own economic predictions. They said there was a significant downside risk to their predictions. Wollmershaeuser said the lockdown measures were causing a crisis of consumption and added that demand for German industrial goods would rise once countries ease their shutdowns. The institutes said the unemployment rate in Germany was likely to hit 5.9 per cent at the peak.

They said the number of people on short-time work - a form of state aid that allows employers to switch employees to shorter working hours during an economic downturn to keep them on the payroll - is likely to rise to 2.4 million. That compares with some 1.4 million employees who were on the scheme in spring 2009 during the global financial crisis. - Reuters