Europe Economy

German economy likely shrank by record 9.8% in the second quarter due to coronavirus, institutes say

Key Points
  • Europe's largest economy probably shrank by 9.8% in the second quarter, its biggest decline since records began in 1970.
  • That would be more than double the drop seen in the first quarter of 2009, when Germany was in the throes of the global financial crisis, the institutes said.
Volunteers dressed in protective suits, masks, gloves and goggles carrying blood and throat mucous samples to test for COVID-19 on March 27, 2020 in Berlin, Germany.
Sean Gallup | Getty Images

Europe's largest economy probably shrank by 9.8% in the second quarter, its biggest decline since records began in 1970, due to the lockdown measures imposed to help slow the spread of the coronavirus, Germany's leading institutes said on Wednesday.

That would be more than double the drop seen in the first quarter of 2009, when Germany was in the throes of the global financial crisis, the institutes said.

Germany has been in virtual lockdown for several weeks. Schools, shops, restaurants and sports facilities have closed and many firms have stopped production to help slow the spread of the disease.

"It is not unlikely that the crisis will drag on longer than expected and lead to production being frozen," said Timo Wollmershaeuser, economist at the Ifo institute — one of the think tanks involved in producing the report.

"In this scenario the recession will be deeper and the recovery will be slower. It will also be more difficult for the government to prevent businesses from going bankrupt," he added.

The top economic research institutes said the economy probably shrank by 1.9% between January and March.

As Reuters previously reported from sources, they said the German economy is likely to shrink by 4.2% this year and grow by 5.8% next year.

"The coronavirus pandemic is triggering a deep recession in Germany," said the institutes, whose forecasts form the basis of the government's own economic predictions. They said there was a significant downside risk to their predictions.

Wollmershaeuser said the lockdown measures were causing a crisis of consumption and added that demand for German industrial goods would rise once countries ease their shutdowns.

The institutes said the unemployment rate in Germany was likely to hit 5.9% at the peak.

They said the number of people on short-time work — a form of state aid that allows employers to switch employees to shorter working hours during an economic downturn to keep them on the payroll — is likely to rise to 2.4 million.

That compares with some 1.4 million employees who were on the scheme in spring 2009 during the global financial crisis.