Germany faces historic recession after Covid-19 coup, top forecasters warn
According to the country’s top economic research institutes, the German economy is slipping into its deepest recession on record and will shrink by almost 10% in the three months before June.
Europe’s largest economy set to contract by 4.2% this year after shutting down many activities to slow the spread of the pandemic, but institutes have predicted it will rebound next year with growth of 5.8 %.
The drop in quarterly output would be the largest since the start of the quarterly national accounts in 1970 and more than double the magnitude of the drop recorded in early 2009 during the global financial crisis.
The forecasts, compiled twice a year by the top five German economic research institutes on behalf of the government, paint a grim picture of the country’s economic outlook, while predicting that it has the fiscal capacity to absorb and recover from ‘such a shock.
“Germany is in a good position to face the economic crisis and return to the economic level it would have reached without the crisis in the medium term,” said Timo Wollmershäuser, head of forecasting at the Ifo Institute in Munich.
The crisis is expected to increase the number of unemployed in Germany by 236,000, bringing the unemployment rate from near a record low of 5% to around 5.5%. This would remain well below the unemployment levels of many euro area countries, where the overall unemployment rate recently hit a 12-year low of 7.4%.
Forecasters have warned that “downside risks are significant.”
“Other infection control measures may come into effect, which could lead to more or less large-scale production disruption,” they added. “Disruptions to the financial system due to growing corporate insolvency are likely, which cannot be avoided by state shields.”
The government’s response to the crisis – including massive support for businesses and workers left behind by the pandemic – will lead the country into a budget deficit of 159 billion euros, or 4.7% of gross domestic product, predict -they. This would reduce public debt from almost 60% of GDP to 70%.
The spring forecast was published by Ifo, the German Institute for Economic Research in Berlin, the Kiel Institute, the Halle Institute for Economic Research and RWI in Essen.