Germany’s economy is likely to shrink this quarter at more than twice the pace recorded at the height of the financial crisis, the country’s leading research institutes said.
Output is predicted to slump 9.8 percent in the April-June period, the most since records for quarterly data began in 1970.
The economy is set to contract 4.2 percent over the course of this year, before government measures to counter the COVID-19 impact fuel expansion of 5.8 percent next year.
Photo: Reuters
The size of the full-year contraction this year is smaller than the 5 percent predicted last week by German Minister for Economic Affairs and Energy Peter Altmaier.
Yet the institutes cautioned that there are “considerable downside risks” to their projections, including a slower than expected weakening in the spread of the virus, problems with reviving the economy after the shutdown eases or a new wave of infections.
“The recession will have a profound impact on the labor market and public finances,” Timo Wollmershaeuser, head of business-cycle analysis and forecasts at the Ifo institute, said in a statement.
The unemployment rate is likely to rise to 5.9 percent this year, he added.
The twice-yearly forecasts, which form the basis of the government’s economic outlook, are prepared by the German Institute for Economic Research in Berlin, the Halle Institute for Economic Research, the Ifo Institute in Munich, the Kiel Institute for the World Economy and the RWI-Leibniz Institute for Economic Research in Essen.
German Chancellor Angela Merkel’s government has moved swiftly to mitigate the effects of the virus on Europe’s biggest economy, pledging hundreds of billions of euros in aid and loans for companies hit by a collapse in demand.
The ruling coalition on Monday announced a new “limitless” loan program for Germany’s small and medium-sized companies, which form the backbone of the economy.
That is on top of a slew of other measures to counter what Merkel has called Germany’s biggest challenge since World War II.
The number of new COVID-19 infections in Germany rose the most in three days, according to data yesterday from Johns Hopkins University, bringing the total to 107,663 in Europe’s fourth-most extensive outbreak.
The number of fatalities climbed to 2,016.
Separately, the French economy shrank the most since World War II in the first quarter, and the outlook for the rest of the year is souring significantly amid the confinement to limit the spread of the virus, the Bank of France said.
The central bank’s estimate of a 6 percent slump is the latest indicator of the severity of the shock to European economies from a simultaneous collapse in demand and supply.
Such a GDP drop from one quarter to the next would be comparable only to the 5.3 percent recorded around the strikes of May 1968.
Like the French statistics agency Insee, the Bank of France had to change its way of measuring to try to get a grasp on the tumult. It used high-frequency data — including card transactions and requests for unemployment benefits — to corroborate the results of its monthly survey of 8,500 businesses.
In industry, the sharpest declines in activity were in the automotive and machine-making sectors, while hotels and restaurants were the hardest hit in services.
Overall, the Bank of France said the loss of activity in one week of confinement is about 32 percent. Insee had estimated 35 percent.
The Bank of France survey also showed that factories are running at just 56 percent of capacity — a record low — down from 78 percent in February.
That loss of activity means that for every two weeks of confinement, this year’s GDP would be 1.5 percent lower, the Bank of France said.
However, it cautioned not to extrapolate from that, because the actual loss of output could be different as businesses and consumers adapt to a longer shutdown.
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