German economy shrinks at record pace in ‘century-long recession’

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BERLIN (Reuters) – Germany’s economy contracted at its fastest pace on record in the second quarter as consumer spending, business investment and exports all slumped at the height of the COVID-19 pandemic. 19, wiping out nearly 10 years of growth.

The Federal Statistical Office said gross domestic output in Europe’s biggest economy fell 10.1% quarter-on-quarter from April to June after a revised contraction of 2.0% in the first three months of the year.

The fall was the steepest since the bureau began collecting quarterly growth data in 1970 and was worse than the 9% contraction predicted by economists in a Reuters poll. Adjusted for inflation, seasonal and calendar effects, it erased nearly a decade of growth, the statistics office said.

“Now it’s official, it’s the recession of a century,” said DekaBank economist Andreas Scheuerle.

“What was previously impossible to achieve with stock market crashes or oil shocks has been achieved by a tiny 160 nanometer creature called coronavirus.”

In another sign of economic weakness, annual inflation came to a halt in July as consumer prices hit their lowest level in more than four years, according to separate data from the statistics office.

Over the year, gross domestic product fell 11.7% from April to June, according to seasonally adjusted figures. Analysts polled by Reuters had expected a contraction of 11.3%.

Exports and imports of goods and services collapsed in the second quarter, as did household spending and equipment investment, the office said. But government spending has increased.

Commerzbank chief economist Joerg Kraemer said the recovery had already started in late April, meaning a sharp increase in output was forecast for the third quarter.

FILE PHOTO: People are seen at the Rhein Center shopping mall after the borders reopened, amid the coronavirus disease (COVID-19) outbreak, in Weil am Rhein, Germany June 15, 2020. REUTERS/ Arnd Wiegmann / File Photo

“However, this does not change the fact that it will take a long time for the German economy to return to its pre-crisis level,” Kraemer added.

Chart: German economy records record fall in Q2 –

UNEXPECTED DROP IN UNEMPLOYMENT

In a rare ray of light for the economic outlook, unemployment unexpectedly fell in July in seasonally adjusted terms, according to data from the Bureau of Labor.

The number of unemployed people fell by 18,000 to 2.923 million people and the unemployment rate remained at 6.4%.

“The labor market is still under pressure due to the coronavirus pandemic, even though the German economy is on the road to recovery,” said Daniel Terzenbach of the Labor Office.

He added that the massive recourse to partial unemployment had helped to prevent a rise in unemployment and job losses.

Partial unemployment is a form of state aid intended to encourage companies to retain their employees in times of crisis. It allows employers to transition their employees to shorter working hours and aims to prevent shocks such as the coronavirus crisis from leading to mass unemployment.

The data bolstered hopes that the labor market could emerge from the slump with little more than a black eye, which could support household spending.

The government hopes its stimulus package, worth more than 130 billion euros ($153 billion), including a temporary VAT cut to boost domestic demand, will help the economy return to growth .

Overall, the government expects the economy to contract by 6.3% this year and rebound with an expansion of 5.2% in 2021. This means that the economy is unlikely reaches its pre-crisis level before 2022.

($1 = 0.8516 euros)

Editing by Michelle Martin and Nick Tattersall

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