BERLIN (Reuters) – Germany’s economy shrank by a record 9.7% in the second quarter as consumer spending, business investment and exports all slumped at the height of the COVID pandemic -19, the statistics office said on Tuesday.
The economic crisis was much deeper than during the financial crisis more than a decade ago, and it represented the biggest drop since Germany began recording quarterly GDP calculations in 1970, the office said. .
Still, the reading marked a slight upward revision from an earlier estimate for the April-June period of -10.1% the bureau released last month.
Consumer spending fell 10.9% in the quarter, capital investment 19.6% and exports 20.3%, according to seasonally adjusted data.
Construction activity, normally a constant growth engine for the German economy, fell 4.2% in the quarter.
“The second quarter was a complete disaster,” said Thomas Gitzel, economist at VP Bank. “Whether investment, private consumption, exports or even imports, everything was in freefall.”
The only bright spot was state consumption, which rose 1.5% in the quarter due to government coronavirus rescue programs, the office said.
Germany’s parliament suspended the debt brake this year to allow the government to fund its crisis response and fiscal stimulus with a new record debt of 217.8 billion euros.
The fiscal turnaround after years of balanced budgets means that the German state recorded a budget deficit of 51.6 billion euros from January to June, the statistics office said in a separate statement.
This represents a 3.2% deficit in economic output as measured by the EU’s Maastricht criteria.
Employment fell slightly by 1.3% on the year to 44.7 million in a sign that the government’s efforts to protect the labor market from the shock of the coronavirus with its short-time work program are paying off.
The relatively moderate impact of the crisis on employment has stabilized the incomes of many households, which, together with the reluctance to consume, has led to a considerable increase in household savings.
The savings rate almost doubled to reach 20.1% in the 2nd quarter compared to the previous year, specifies the office.
The German central bank expects household spending to drive a strong recovery in the third quarter, although the economy may not reach its pre-crisis level before 2022.
The government’s stimulus measures include a temporary VAT cut from July to December worth up to 20 billion euros, which Berlin hopes will give an additional boost to household spending.
“The reopening of the economy will give the German economy a strong boost in the period from July to September,” Gitzel said, but he added that the moment of truth would come during the autumn months and winter, which could see a wave of bankruptcies. .
“Furthermore, the negative consequences of structural change in the automotive industry are becoming more and more evident,” Gitzel said, pointing to many smaller suppliers in the sector who are struggling to adapt to digitalization and change. ‘electrification.
Reporting by Michael Nienaber; edited by Thomas Seythal, Andrew Heavens and Giles Elgood