Germany: Engine of Europe

Germany's economy contracted by 5% in 2020 as coronavirus lockdowns hit growth

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Key Points
  • Coronavirus cases have prompted several lockdowns on public life and economic activity in Germany.
  • Chancellor Angela Merkel announced last week that the latest lockdown would be extended until the end of the month.
German Chancellor Angela Merkel takes off her face mask as she gives a press conference on the actual situation amid the novel coronavirus / COVID-19 pandemic, following a meeting with her so-called Corona-Cabinet, on November 2, 2020 in Berlin.
Kay Nietfeld | AFP | Getty Images

Germany's economy contracted by 5% in 2020, according to full-year GDP (gross domestic product) data released on Thursday.

The preliminary figures, which were slightly better than the 5.1% forecast, come after a year of economic turbulence for Germany, and the rest of the world, as the coronavirus pandemic prompted disruption to businesses and large swathes of the economy.

Coronavirus cases have prompted several lockdowns on public life and economic activity in Germany. Chancellor Angela Merkel announced last week that the latest lockdown would be extended until the end of the month.

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Amid heightened concerned over the spread of a more virulent variant of the virus, initially identified in the U.K., German newspaper Bild reported earlier this week that Merkel had told a meeting of lawmakers from her Christian Democratic Union party that the current lockdown could last until the start of April.

On Thursday, Germany reported more than 25,000 new cases of the coronavirus in the last 24 hours, taking its total number of cases to 1,978,590, data from the Robert Koch Institute showed.

Carsten Brzeski, global head of macro at ING, said "ongoing lockdowns and fading positive one-off factors don't bode well for the first quarter" of 2021.

"Given that one-off positives like inventory build-ups and construction might no longer help in the fourth quarter, and demand from China could also weaken on the back of lockdowns and the Chinese New Year, the first quarter performance of the German economy should be weak," he said in a note Thursday.

"While it currently looks as if the German economy avoided a black eye in the final quarter of 2020, it is hard to see how it can perform the same magic again in the first quarter."