Germany Contracts Most Since Global Financial Crisis

The German economy contracted the most since the 2008-2009 global financial crisis in 2020, but most likely avoided a double-dip in the fourth quarter of the year, underpinned by the better performance of the manufacturing sector.

Gross domestic product fell 5 percent in 2020, in contrast to the 0.6 percent rise seen in 2019, data from Destatis showed on Thursday. This was the first contraction in ten years.

However, the economic downturn was less serious than in 2009, when GDP slid 5.7 percent and was also better than the economists’ forecast of -5.1 percent.

In calendar-adjusted terms, GDP was down 5.3 percent versus a 0.6 percent rise in the previous year.

Andrew Kenningham, an economist at Capital Economics, said the 5 percent decline confirmed that it withstood the lockdown well in the fourth quarter. It now seems likely that GDP will decline in the first quarter of this year, but it should expand rapidly after that as the vaccination programme is rolled out, the economist noted.

The statistical office will publish the fourth quarter GDP data only on January 29.

On the expenditure-side, household spending decreased 6 percent, while government consumption advanced 3.4 percent largely due to the acquisition of protective equipment and hospital services.

Gross fixed capital formation was down 3.5 percent, which was the biggest fall since GFC.

The corona pandemic also had a massive impact on foreign trade. Exports and imports decreased for the first time since 2009, down 9.9 percent and 8.6 percent, respectively.

Almost all economic sectors were markedly affected by the corona pandemic in 2020.

In industry, excluding construction, which accounts for just over one quarter of the total economy, the economic performance declined 9.7 percent in 2020, and by 10.4 percent in manufacturing.

The economic slump was particularly strong in the service sector where decreases were partly as severe as never before. Meanwhile, gross value added in construction grew 1.4 percent.

Further, data showed that general government budgets recorded a financial deficit of EUR 158.2 billion at the end of 2020, which was the first deficit since 2011 and the second highest deficit since German reunification.

The budget deficit exceeded the 3 percent reference value of the Stability and Growth Pact. As a percentage of GDP, the deficit widened to 4.8 percent.

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