Germany Falls Into Recession, Q2 Outlook Grim
Germany and Chancellor Angela Merkel will likely leave economic growth behind for at least another quarter.

- German decline second-worst since reunification

- EZ Q1 estimate confirmed


By Eric Culp

European Editor, LiveSquawk News



Frankfurt, 15 May 2020 (LS NEWS) – Germany has fallen into recession in a coronavirus-driven contraction likely to accelerate in the second quarter even as the country slowly exits lockdown.


Seasonally adjusted GDP dropped at a quarterly rate of 2.2pct in the first quarter, a decline in-line with market estimates. But the German statistics office lowered the country’s growth rate for the final quarter of 2019 to 0.1pct from 0.0pct, which put the economy in recession.


The first-quarter contraction was the largest in 11 years and the second worst since German reunification in 1999. Growth fell 4.7pct in the first quarter of 2009.


“Two weeks of lockdown as well as supply chain disruptions on the back of lockdown measures elsewhere brought the German economy to its knees,” said ING Chief German Economist Carsten Brzeski.


Germany has shown more resilience to the crisis than other major Eurozone economies, a number of which have been much harder hit by the virus. Growth last quarter fell 5.8pct in France, 5.2pct in Spain, and 4.8pct in Italy.


The German statistics office said government expenditures and construction industry helped soften the impact of the pandemic on the economy.


German GDP shrank at a non-adjusted annual rate of 1.9pct last quarter, which was worse than the market expectations for a 1.6pct contraction, according to office. It reduced the growth rate for the fourth quarter to 0.2pct from 0.3pct.


The office said difficulty collecting information for last quarter’s results could spark more pronounced adjustments to the numbers in the days ahead. “Due to the greater uncertainties, the estimations may lead to larger revisions than usual.”


Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, noted that a disclaimer about the accuracy of economic information “is a cautionary tale that extends to all Eurozone macro data at the moment, especially the headline GDP, employment and unemployment numbers.” 



German economic output dropped sharply in the first quarter..

On the cliff face


The EU confirmed its initial estimate of a Eurozone quarter-on-quarter contraction of 3.8pct in January-March, and virtually all observers said they expect an implosion in the single-currency area during the current quarter. Many estimates are for a double-digit decline, and some economists are even predicting German GDP will shrink by 10pct or more. Deutsche Bank forecasts a 14pct plunge.


“We expect a further substantial drop in economic activity in April,” Deutsche said. “This is clearly indicated by mobility data. The index for truck traffic on German highways, for example, fell by 10.9pct month-on-month in April.”


For Europe’s largest economy, it’s all downhill from here, at least until June. “If today’s data are the result of two weeks of lockdown, three more weeks of lockdown and a very gradual lifting of some measures do not bode well,” ING’s Brzeski said.


“The timing of the lifting of the lockdown measures as well as the huge fiscal support by the German government (more than 30pct of GDP) support the view that the German economy could leave the crisis earlier and stronger than most other countries. Still, there is no reason for complacency or hubris.”