Germany is experiencing a historic economic downturn – GDP is falling dramatically
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The German economy slumped at a record pace in the second quarter. From April to June, gross domestic product fell 10.1 percent compared to the previous quarter. Seven years of economic growth are erased within three months.
DGermany’s changing economic history must be expanded by a dramatic chapter. In the pandemic crisis of 2020, gross domestic product collapsed as much as it has not since the Second World War. In the months from April to June, Germany’s economic output was seasonally adjusted 10.1 percent lower than in the previous quarter, which had also seen a minus of two percent according to revised figures.
With the slump, which the Federal Statistical Office has now put in numbers for the first time, seven years of economic growth were erased in a single quarter. The crash was twice as high as during the financial crisis when GDP slumped by 4.7 percent. The decline was now much more pronounced than expected by economists. The experts had predicted a nine percent slump in the second quarter. The German economy collapsed by 11.7 percent compared to the previous year.
The full force of the virus crisis is reflected in the data. In March, measures to contain the corona pandemic put the German economy in an artificial coma. As a result, the economy shrank significantly more between April and June than in the first three months of this year.
The effects of the lockdown had a full impact in the second quarter: private consumption in Germany collapsed, companies put their investments on hold, and exports largely came to a standstill. The donable state alone ensured that economic output was not hit even harder.
After all, the Federal Republic has come through the crisis relatively lightly compared to other countries. In France, which will release its figures this Friday, GDP is likely to have plummeted 15 percent in the second quarter. In Italy the minus could be 14 percent and in Spain even 16 percent.
The mild crash here compared to other euro countries has its price. The federal government has launched one of the most expensive government bailout programs ever. In addition to a supplementary budget of 156 billion euros, which corresponds to around 4.5 percent of GDP, an economic stimulus program of 130 billion euros was launched, which is supposed to get Germany out of the crisis with a bang, as Federal Finance Minister Olaf Scholz (SPD) put it.
Memories of the Great Depression
In addition, a rescue fund of over 600 billion euros was set up, plus state guarantees amounting to 400 billion euros.
The worst crisis in decades brings back memories of the Great Depression in the early 1930s. In the first full year of crisis in 1930, economic output declined by 6.7 percent, followed by minus 16.4 percent in 1931 and minus 17.6 percent in 1932. It took almost a decade for gross national income to recover from this setback .
In another respect, however, the comparison with the Great Depression in the early 1930s reaches its limits. At that time, almost a third of Germany’s working population was registered as unemployed. Statistically, that was around six million people. Many long-term unemployed did not appear in the statistics.
Unemployment has also increased in the crisis months of 2020, the Federal Employment Agency reported 2.91 million people without a job in July, 635,000 more than a year ago. However, the decline in employment no longer appears to be accelerating and at least to stabilize in the short term. Short-time work also contributes to this. While this is an expensive tool, it has the advantage that companies do not have to lay off immediately.
According to current information from the Federal Agency, 6.7 million people were still working in Germany in May. In April the number was 6.1 million.
According to economists, the future prospects are as difficult to assess as rarely before. Because the pandemic itself represents a historic turning point for which there is no precedent in a highly networked world economy. While some of the experts assume that the economy will recover quickly in the second half of the year and provide indications for this, others expect a second wave and thus a renewed slump or, if need be, stagnation. It is a historical situation, both good and bad, that will find its way into the history books.