Germany's stricter lockdown increases recession risks

BERLIN: Germany's decision to tighten a second coronavirus lockdown has increased the risk of another recession in Europe's largest economy, economists said on Monday.

Chancellor Angela Merkel and state leaders agreed on Sunday to shut most stores from Wednesday until at least January 10 to reverse a tide of COVID-19 infections that lighter restrictions introduced on November 2 have failed to tame.

The German economy suffered its worst recession on record as the first wave of coronavirus infections pushed down gross domestic product by 1.7pc in the first quarter and by an unprecedented 9.8pc in the second quarter.

The economy rebounded by a stronger-than-expected 8.5pc in the third quarter, driven by higher consumer spending and booming exports.

Economy Minister Peter Altmaier said on Monday he was hoping that Germany would be able to avoid another recession despite the decision to tighten the national lockdown.

"I hope we can prevent a complete economic standstill in the second wave of the pandemic," Altmaier told public radio Deutschlandfunk on Monday.

"DOUBLE DIP" RECESSION

But economists from Commerzbank, Berenberg Bank, Deutsche Bank and ING all agreed that this scenario was highly unlikely and that the tighter lockdown was pushing Europe's largest economy towards a second, or 'double dip', recession.

Under the stricter rules, only essential shops such as supermarkets and pharmacies, as well as banks, can remain open from Dec. 16. Hair salons, beauty salons, and tattoo parlours will also have to shut.

The lockdown hits industry too when most shops are forced to close, said Commerzbank chief economist Joerg Kraemer, adding: "Germany should brace for a second recession."

Commerzbank now expects the German economy to shrink by at least 1pc on the quarter in the final three months of this year and by a further 0.5pc in the first three months of 2021.

Berenberg Bank economist Holger Schmieding said he now expected GDP to shrink by 1.8pc in the fourth quarter, surpassing his previous estimate of -1.0pc, but that it should be able to make up those losses in the second quarter of 2021.

"The shock is much smaller than in the first wave. We have learned to deal with a lockdown much better now than during the first wave. Manufacturing and exports are hardly affected," Schmieding said.

Strong industrial orders, higher manufacturing output and rising retail sales in October had suggested the German economy got off to a solid start in the fourth quarter before the partial lockdown was imposed in November.