The German economy shrank 5% last year, according to official figures, among the smallest declines expected in Europe despite the coronavirus pandemic causing the deepest recession since the 2008 financial crisis.
Germany’s recession is expected to be among the least severe in Europe, with analysts attributing a decisive fiscal response and avoiding overly optimistic forecasts. By comparison, domestic production is expected to fall by more than 9% in Italy and France, and by 11.3% in the UK – the worst performance in over 300 years.
Analysts said the makeup of the German economy has helped it outperform many nearby neighbors, with its larger manufacturing and export base being able to continue operating with less disruption than it does. heavy economy in the UK service sector.
Industrial production accounts for more than a quarter of the German economy, compared to around a tenth of the British economy. In the UK, social consumption – the face-to-face spending on goods, services and activities that suffer most from physical distancing restrictions – is higher than in other major economies, according to figures from the Bank of ‘England.
Germany’s national statistics office said that Germany’s gross domestic product (GDP) decreased by 5% in 2020 compared to the previous year, because the pandemic ended a 10-year period of growth with a decline similar to that caused by the 2008-09 financial crisis. However, the recession caused by Covid has been less severe, according to provisional estimates. German GDP fell 5.7% in 2009.
Tomas Dvorak, an economist at consultancy firm Oxford Economics, said the UK was particularly hard hit during the first wave of the coronavirus crisis. The delayed introduction of the lockdown required tighter restrictions which then stayed in place longer than other countries, causing a more severe slowdown, he said. UK GDP fell 19% in the second quarter of 2020 – among the worst performing in the developed world.
Comparing the two countries further, Dvorak said: âGermany was also more decisive with its fiscal response, although the overall size of the stimulus was not massive, and they avoided ‘cliff edges’ to give overly optimistic deadlines for the withdrawal of the leave scheme.
Germany’s emergency response to the crisis, offering tax cuts and injecting billions of euros in additional spending into Europe’s largest economy, accounted for around 4.3% of its 3 , 3 billion euros (2.9 billion pounds sterling), according to Andrew Kenningham, chief economist for Europe at the consultancy firm Capital Economics. This compares to 12.4% worth of support to the UK economy of Â£ 2.2bn. âOf course, Germany didn’t need to provide so much support because the economy wasn’t hit so badly,â he said.
Under the German system of wage subsidies to protect workers’ jobs – similar to the UK leave scheme – the maximum number of people with access to assistance was the equivalent of 12.6% of the working population, up from 26 % in the UK, Kenningham added.
The German statistics office said that Germany’s economic growth was likely to have stagnated in the last three months of the year, a period of rising Covid infections as several other major European economies are expected to have fallen into a double-dip recession, including in the UK.
Adjusted for a shorter number of working days in 2020 than a year ago, Germany’s GDP fell 5.3% as the pandemic caused widespread disruption to the economy with lower spending by households and industrial production.
After eight years of budget surpluses, Germany recorded a budget deficit – the gap between public spending and tax revenue – of 158.2 billion euros, or nearly 5% of GDP, at the end of 2020, according to provisional estimates. The UK is expected to run a deficit of Â£ 394 billion, or 19% of GDP, for the fiscal year ending March 2021.
Rishi Sunak, the British Chancellor, defended Britain’s economic record, saying the way the Office for National Statistics calculates the public sector contribution exaggerates the decline relative to other countries. While economists say this is a factor, they argue that it is not enough to fully explain the UK’s underperformance.
Kenningham said: âThis is only a relatively small amount of the difference between the economic performance of Germany and the UK last year.
âNon-essential retail was generally open last year in Germany and the construction industry was fully open. This in turn reflected the less acute health crisis. There were far fewer deaths, the health system less overwhelmed and had more capacity, and more effective tracking and traceability. “