Germany’s economy officially entered a recession in the first quarter of 2020 after the federal statistics agency, Destatis, revised its gross domestic product (GDP) data lower.
The revised data showed that Germany’s GDP shrank by 2.2% compared to the last quarter. This was the steepest quarter-on-quarter decline since 1969. The drop was in line with economists’ expectations, although the previous estimate had been for a more modest contraction of 1.7%.
The decline was largely driven by a slump in exports as order books for German goods dried up due to the coronavirus pandemic. Consumer spending and construction investment were also weaker.
The recession was not unexpected as Germany had already been in the midst of a slowdown as it entered 2020, before the pandemic truly began in Europe. Analysts say the recession is likely to intensify in the second quarter as activity continued to decline during the peak of the virus outbreak.
The German government has implemented a range of measures to mitigate the economic impact of the crisis, including wage subsidies and grants to businesses, loan guarantees, and a solidarity fund to support those most affected. In addition, the government has set up a €600 billion economic rescue package.
Despite the size of the packages, many analysts are concerned about the long-term impact of the pandemic on the German economy. Many businesses are facing an uncertain future and unemployment could rise sharply in the coming months.
For now, Germany should weather the storm better than many of its European neighbours. But its recovery will depend on just how severe the economic damage proves to be.