German economy shrank 5% in 2020 due to COVID-19

Monitoring Desk

BERLIN (Reuters) – The German economy shrank by a smaller-than-expected 5.0% in 2020 as a strong state response helped to limit the havoc caused by the COVID-19 pandemic, preliminary data from the statistics office showed on Thursday.

The drop in gross domestic product was smaller than a Reuters forecast of -5.1% and less severe than the record contraction of -5.7% suffered in 2009 during the global financial crisis.

Chancellor Angela Merkel’s coalition government has since March unleashed an unprecedented array of rescue and stimulus measures in Europe’s biggest economy to help companies and consumers make it through the pandemic as unscathed as possible.

Adjusted for calendar effects, the economy contracted 5.3%, the preliminary data showed.

Private consumption tumbled 6% on the year while company investment in new equipment also fell sharply.

Exports plunged nearly 10% while imports dropped 8.6%, the office said. This suggests that Germany’s large trade surplus, and with it the wider current account surplus, narrowed due to the pandemic.

The only bright spots came from government spending, which pushed up state consumption by 3.4%, and construction, where investment in building rose 1.5% the data showed.

The public sector, including federal states, municipalities and social security systems, ran a budget deficit of 158.2 billion euros ($192.31 billion) or 4.8% of GDP, the office said.

This marked a severe deterioration of public finances following a surplus of 52.5 billion euros or 1.5% in 2019.

($1 = 0.8226 euros)

Courtesy: Reuters