German GDP Plummets in Q2; July Jobless Numbers Drop Unexpectedly

- Quarterly growth plunges record 10.1pct to extend recession

- Unemployment steady at 6.4pct

- Analysts already touting German recovery

 

By Eric Culp

European Editor, LiveSquawk News

@EricCulpLS

 

Frankfurt, 30 July 2020 (LS NEWS) – Economic activity in Germany fell at a record pace in the second quarter, but a surprising drop in the number of unemployed this month offered another sign that Europe’s largest economy is reviving following the elimination of many government restrictions designed to curb the spread of Covid-19.

 

Quarter-on-quarter GDP plunged 10.1pct, the worst decline since Germany began reporting quarterly growth results in 1970, according to preliminary data from Germany’s Federal Statistics Office. The contraction was worse than both the market forecast of a 9.0pct decrease and the 2.2pct drop in the first quarter.

 

The second-quarter contraction means that Germany remained in recession; the country’s quarterly growth rate has been negative since the final three months of 2019.

 

The annual non-calendar adjusted growth rate of -11.7pct in the second quarter was also a record drop. Analysts had expected -10.9pct following the -1.9pct reading in the first three months of this year.

 

“A massive slump was recorded for exports and imports of goods and services as well as for household final consumption expenditure and capital formation in machinery and equipment,” the statistics office said.

 

Following Thursday’s announcement, Oxford Economics Chief German Economist Oliver Rakau said, “Europe is going through its worst recession in living memory.”

 

But the Eurozone’s biggest economy will fare far better than other partners bound together with the single currency, he noted. “Combined with more timely data that shows a strong bounce-back in economic activity in Germany as lockdowns were lifted, this supports our view that the German economy will easily outperform the rest of the eurozone this year.”

 

The first report on second-quarter Eurozone growth is due Friday at 09.00 GMT.

 

Job market shows surprise uptick

Like many analysts, Andrew Kenningham, chief Europe economist at Capital Economics, sees further growth ahead. “Provided there is no new surge in virus cases and a second nationwide lockdown, there should be a substantial rebound in the third quarter.

 

“We already know that in May industrial production rose by 7.8pct month-on-month and retail sales by 13.9pct month-on-month – the latter to above pre-crisis levels. Daily data for electricity demand and measures of mobility point to a further improvement in June and July.”

 

The number of unemployed in Germany declined unexpectedly this month, according to seasonally adjusted data from the Federal Labour Office. Jobless claims dropped by 18,000, which compared with the market estimate for an increase of 41,000. Claims rose 61,000 in June and 238,000 in May.

 

The seasonally adjusted jobless rate held steady at 6.4pct to beat the estimate of 6.5pct.

 

“Formerly known as the stronghold of the economy, the labour market has become a good indicator of the economic damage,” ING Chief German Economist Carsten Brzeski said. He pointed out that since March, around half a million Germans have lost their jobs and some 6.7mln others are currently benefiting from short-time work schemes.

 

Germany’s Kurzarbeit programme of government wage subsidies for workers has kept unemployment low, but it will take years for the country’s job market to fully recovery, according to Detlef Scheele, the head of the labour office. He said last week that employment may not return to “normal levels” until 2023.