The German economy shrank by 5 percent in 2020 due to financial havoc caused by the covid pandemic, preliminary data from the Federal Statistics Office showed today. This is despite the Chancellor’s coalition Government’s effort to unleash an unprecedented amount of rescue and stimulus measures in Europe’s biggest economy to help companies and consumers make it through the crisis. The only other time Germany has seen a collapse this big since the Second World War was during the global financial crisis in 2009, where the decline was even stronger at 5.7 percent.
Veronika Grimm from the Expert Council for the Assessment of Overall Economic Development said: “The year 2020 was an exceptional situation.
“Stabilisers such as short-time work prevented bankruptcies and a slump in the labour market with the bridging aid.”
She added a second wave of the deadly coronavirus pandemic, which included a lockdown, made the struggle to financially recover worse.
Exports plunged nearly 10 percent while imports dropped 8.6 percent, the figures showed.
This suggests that Germany’s large trade surplus and the wider current account surplus narrowed due to the pandemic.
However, Ms Grimm was optimistic that exports could improve early this year.
She said: “The Germans consume a lot differently than in the spring.”
Hospitality, culture and travel sectors, which have been closed since November, only contributed around five percent to economic output.
The losses from these sectors are expected to be made up by state aid.
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But the despite the lockdown, 2021 could see growth as the year goes on.
The Institute for Macroeconomics (IMK) said it currently sees a lower risk of a new slump than in December.
Ms Grimm added: “Supply chains and production in the industry are back on track.
“We should have growth of around three percent in 2021.”
But even if the retail sector opens again from February and the rest of lockdown in the hospitality and other sectors ends at the end of March, GDP is only likely to rise by 0.5 percent in the first quarter.
Last summer, the Bundestag (Germany’s federal parliament) decided to take out nearly 220 billion euros in additional loans to help the economy.
This means the country is beginning the new year with extra debts.
But Germany can afford that, according to Lena Dräger from the University of Hanover.
She told German news site Suddeutsche: “The financing situation for the state is favourable.”