German economy sees deepest decline on record

German shoppers in a supermarket Image copyright Reuters

The German economy shrank at its fastest rate on record amid the impact of the coronavirus pandemic, according to new official figures.

The total production of goods and services declined by 10.1% during the April-to-June period.

It was the sharpest decline since Germany began producing quarterly growth figures in 1970.

The contraction followed a smaller but still severe drop in activity of 2% in the previous three months.

The German economy, in common with most others, has been hit very hard by the pandemic and the restrictions that have been imposed in an effort to contain it.

The country’s statistics office said there had been a “massive slump” in household spending, investment in equipment and machinery and in exports and imports.

Germany is a leading exporter, especially for manufactured goods, so it has inevitably been hit hard by the disruption to international trade that the health crisis has caused.

Rebound expected

The one area where the statistics office said there was some growth was government consumption spending – which means non-investment spending by the public sector.

There have been signs in other data that a recovery may have started after April. That is suggested by monthly figures for industrial production and retail sales, for example.

Andrew Kenningham of Capital Economics says that he expects a rebound in GDP in the current, third quarter of the year. But he expects it to remain below pre-crisis levels for a long time to come.

The new figures confirm that Germany has been in recession as the term is often defined – two consecutive quarters of declining GDP.

Previously it was believed that the recession started in the final quarter of 2019, with a small decline from the previous three months.

But the statistics office has revised the figures for that period to no change (at least when rounded to one decimal place). So it now appears that the recession began in the first quarter of this year.