Thursday 30 July 2020 9:27 am

German economy shrinks at record rate as coronavirus bites

The German economy contracted at a record rate in the second quarter of the year as the coronavirus pandemic sent the country into lockdown.

German GDP fell by 10.1 per cent quarter on quarter after shrinking two per cent in the first three months of the year. 

Read more: EU leaders reach €750bn coronavirus recovery deal after marathon summit

It was the biggest drop since records began in 1970 and much larger than the 4.7 per cent contraction seen in the first quarter of 2009.

Europe’s biggest economy – and manufacturing powerhouse – suffered a “massive slump” in exports and imports, the German statistical office said today. Household consumption and investment also plummeted.

However, Germany is well into its recovery phase after the lockdowns of the spring. The number of people unemployed in Germany unexpectedly dropped in July, figures showed today.

The Labour Office said the number of people out of work fell by 18,000 to 2.92m. That was better than the predicted increased of around 40,000.

Andrew Kenningham chief Europe economist at Capital Economics, said: “Provided there is no new surge in virus cases and a second nationwide lockdown, there should be a substantial rebound in the third quarter.”

German economy reopens but virus fears remain

It comes as the German economy gradually reopens from its coronavirus lockdown. It has weathered the coronavirus storm better than most of its neighbours, with 9,200 deaths.

However, coronavirus cases are rising in parts of Europe, worrying policymakers. The UK this week said travellers coming back from Spain would have to quarantine, hurting the latter country’s tourism industry.

The EU this month struck a deal to form a €750bn (£680bn) coronavirus recovery fund. It will raise debt through the European Commission and hand out much of the money as grants.

Read more: Germany advises against travel to Spain’s virus-hit regions

The deal has helped restore investor confidence in the Eurozone and sent down the borrowing costs of hard-hit countries like Italy.

Kenningham said: “Moreover, Germany should benefit from more generous fiscal support than elsewhere in the coming months.”