German economy shrinks by record 10.1 percent in Q2

FRANKFURT AM MAIN: The German economy shrank by a record 10.1 percent in the second quarter as coronavirus lockdowns took their toll, official data showed Thursday, but experts say a recovery is already under way. Federal statistics agency Destatis called the quarter-on-quarter decline in gross domestic product "historic" and far bigger than any slump seen during the 2008-2009 financial crisis.

For the whole of 2020, the German government forecasts that GDP will contract 6.3 percent before expanding by 5.2 percent in 2021. By contrast, the European Commission expects the economies of France, Italy and Spain to shrink more than 10 percent this year.

Germany has withstood the coronavirus shock better than many of its neighbours so far. Stable infection rates saw it reopen factories, shops and restaurants from early May, allowing economic activity to pick up again.

Germany has also been able to avoid mass layoffs thanks to subsidised shorter-hours schemes, with separate data on Thursday showing unemployment held steady at 6.4 percent in July, the same rate as June.

Better-than-expected business and consumer confidence surveys recently suggest Germans are feeling more optimistic about the future. But concerns have grown over a spike in Covid-19 cases at home and across Europe, partly fuelled by summer travel. As an export powerhouse, Germany is highly vulnerable to virus setbacks in other countries that could lead to renewed shutdowns that once again disrupt supply chains and suppress demand.

In April and May, at the height of the global lockdowns, German exports plummeted around 30 percent year-on-year. In the hard-hit car sector alone production fell 40 percent year-on-year over the first six months of 2020, reaching a 45-year low.

Economy Minister Peter Altmaier had warned earlier this year that the pandemic would push Europe's top economy into "the worst recession" in its postwar history, ending a decade of growth. Analysts had expected a slightly smaller contraction of around nine percent from April to June.

Destatis said efforts to contain the Covid-19 outbreak had led to "a massive slump" in exports and imports, although government spending had increased over the period. The agency also revised its first quarter data, saying output declined 2.0 percent from January to March, slightly better than the previously announced 2.2 percent.

The worst of the pain may already be over. Thursday's data "is nothing more than a look in the rearview mirror", ING bank economist Carsten Brzeski said, expecting "a strong rebound" in the third quarter.