German 2020 GDP Contraction Seen Above 5%, Q4 Trend Unclear

- Analysts predict annual growth at -5.1% (0.6% in 2019)

- Stats office likely to offer guidance on Q4

- Data due Thursday at 09.00 GMT


By Eric Culp

European Editor, LiveSquawk News



12 January 2021 | 16.05 GMT


FRANKFURT – Economists say the German economy likely contracted more than 5% in 2020 due to the pandemic, and the country’s Federal Statistics Office on Thursday is expected to offer comments about how the country fared in the fourth quarter when it presents the full-year data.


A survey of economists predicts that Europe’s largest economy shrank 5.1% last year after growing 0.6% in 2019. Such a decline would be massive but would fall short of Germany’s 5.7% GDP contraction in 2009 following the Global Financial Crisis.


The German economy whipsawed for the first nine months of last year as the pandemic gripped the country. Record growth of 8.5% in the third quarter followed a record plunge of 9.8% in the prior three months and a 2.2% contraction in the first quarter.


While Thursday’s data are backward-looking, many economists are still keen to find out about the economy’s health in the final quarter of the year. The statistics office said it will probably not provide a hard number for the growth rate last quarter but could signal how the economy fared during the period. Last January, for example, officials said the final quarter of 2019 showed a “small increase”, which later turned out to be quarterly growth of 0.1% that was subsequently revised down to 0.0%.


Growth in Q4, or a double dip?

A positive report seems likely for the final three months of 2020 following last week’s German factory output data for November, according to Daniela Ordonez, chief French economist at Oxford Economics. “German industrial production remained robust over the month despite the re-imposition of containment measures and grew for the seventh consecutive month. As industrial surveys remained positive in December, the resilience of the industrial sector is likely to allow Germany to avoid a GDP contraction in Q4.”


But the pandemic’s chronic intrusion into everyday life presents a danger, said Carsten Brzeski, global head of macroeconomics at ING. “Given the negative impact from the latest lockdown measures on sentiment and services, particularly in the last two weeks of December, a small contraction and hence a double dip of the German economy is still possible.”


And any optimism following the end of 2020 may need to be curbed when it comes to economic performance, noted Andrew Kenningham, chief Europe economist at Capital Economics. “At the start of this year, […] there is less room for a further sharp expansion in manufacturing output while the decline in services activity is likely to continue as restrictions are extended and tightened. We expect GDP to contract slightly in Q1.”