Germany faces historic recession on Covid-19 hit, top forecasters warn
Martin Arnold
The German economy is sliding into its deepest recession on record and will shrink by almost 10 per cent in the three months to June as the coronavirus crisis deepens, according to the country’s top economic research institutes.
Europe’s largest economy is expected to contract by 4.2 per cent this year, after many activities were shut down to slow the spread of the pandemic, but the institutes predicted it would rebound next year with growth of 5.8 per cent.
The drop in second-quarter output would be the sharpest since quarterly national accounts began in 1970, and is more than double the magnitude of the tumble recorded in early 2009 during the global financial crisis.
The forecasts, compiled twice a year by Germany’s top-five economic research institutes on behalf of the government, paint a gloomy picture of the country’s economic outlook, while predicting that it has the fiscal capacity to absorb and recover from such a shock.
“Germany is in a good position to cope with the economic slump and to return in the medium term to the economic level that it would have reached without the crisis,” said Timo Wollmershäuser, head of forecasts at the Munich-based Ifo Institute.
The crisis is expected to increase the number of unemployed people in Germany by 236,000, pushing the jobless rate up from close to a record low of 5 per cent to about 5.5 per cent. That would remain well below the jobless levels of many countries in the eurozone, where the overall unemployment rate recently hit a 12-year-low of 7.4 per cent.
The forecasters warned that the “downside risks are substantial”.
“Further measures to fight infection could come into force”, they added. “Disruptions in the financial system as a result of growing corporate insolvencies would be likely, which could not be prevented by state shields.”
The government’s response to the crisis – including massive support for companies and workers left out of pocket by the pandemic – will push the country into a budget deficit of €159bn, or 4.7 per cent of gross domestic product, they forecast. This would increase public debt from close to 60 per cent of GDP to 70 per cent.
The spring forecasts were published by Ifo, the German Institute for Economic Research in Berlin, the Kiel Institute, the Halle Institute for Economic Research, and RWI in Essen.
