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Alba Iulia
Thursday, May 28, 2020

Germany prepares for recession

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German Chancellor Angela Merkel on April 30, 2020 in Berlin. – Kay Nietfeld / AP / SIPA

This is the figure that all of Europe expects. Gross domestic product German of the first quarter, published on Friday, should give a taste of the shock inflicted by the coronavirus on the first European economy. As with all European countries, the confinement has paralyzed production in many sectors, greatly slowed trade and curbed consumption.

GDP expected to plunge 10% in second quarter

Even starting in mid-March, the restrictive measures were enough to depress activity: the experts cited by the financial analysis tool Factset predict a 2.1% drop in the German economy over this period compared to the previous quarter, and 2.5% year on year, unheard of since the financial crisis of 2008. Above all, the second quarter should experience a plunge of 10% of German GDP over a year according to joint projections of the main economic institutes published At the beginning of April.

Hope for a rapid rebound after a few weeks of slowing has dissipated and, despite the easing of restrictions in May, the pandemic is expected to weigh on the economy throughout the year. For 2020, the German government forecasts a 6.3% recession, the strongest since the calculations began in 1970. And the pandemic should cut tax revenues by nearly 100 billion euros compared to the previous forecast. October, said the Minister of Finance on Thursday.

The automotive industry at its worst

The export industry, pillar of the German economic model, is particularly suffering, after having already been weighed down in 2019 by trade tensions and Brexit. In March, industrial production fell 9.2% on a month, unheard of since 1991, according to the federal office of statistics. The automobile sector is affected: Germany produced 97% fewer cars in April than a year earlier.

Industrial conglomerates are also struggling, Thyssenkrupp and Siemens having seen a sharp drop in their bottom line at the start of the year, victims of a drop in demand. The German airline Lufthansa, the leading European airline group, is currently losing one million euros per hour due to the fall in air traffic, when the world number 1 in tourism TUI, is about to cut 8,000 jobs.

Forget about budgetary rigor

With the reopening in May of stores and many public places, the goal now is to accelerate economic recovery. Berlin forecasts a rebound as early as 2021, with expected growth of 5.2%, hoping to return to production levels in 2019 in 2022. “Germany will emerge from the crisis faster and more vigorously than other Western countries”, because it “spent more money to save its economy,” predicts Carsten Brzeski of ING bank.

To deal with the crisis, Berlin has turned its back on budgetary austerity, adopting an ambitious plan of public loan guarantees and direct aid to companies, for a volume of 1.1 trillion euros. But the economy “can only recover if Germany’s main trading partners”, including “its European neighbors”, China and the United States, “return to growth”, underlines Jens-Oliver Niklash, economist for LBBW bank. A more delicate condition to fulfill than the coronavirus fuels the Sino-American tensions, which could, as in 2019, weigh on world trade.

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