Germany’s virus-hit GDP contracts by 5% in 2020

Germany saw its deepest economic contraction in more than a decade last year as millions of companies and workers were hit by the coronavirus pandemic.

Output shrank 5% amid recurring lockdowns and restrictions, according to a preliminary estimate by the statistics office. The government ran a budget deficit of 4.8% of gross domestic product, the biggest since 1995.

Germany is the first advanced economy to publish full-year figures, and it’s likely to fare better than its major European peers.

Economists estimate France and Italy both posted declines of about 9% and UK gross domestic product may have shrunk more than 10%.

The pain is extending into 2021 after a new surge in infections forced governments to extend lockdowns. Still, Germany has so far proved relatively resilient, in part due to extensive government support and its sizeable manufacturing sector.

Retail sales and industrial activity were surprisingly strong at the end of last year, suggesting the economy might have recorded shallow growth in the final three months.

Official figures for the fourth quarter won’t be available until the end of this month.

“Germany’s economy fared better in the fourth quarter than anticipated and may escape a contraction. Set against that, Chancellor Angela Merkel has agreed to extend measures aimed at tackling the spread of the coronavirus.

“We estimate that keeping the economy in stasis until the end of January will prompt a contraction of around 1% in the first quarter,” Jamie Rush and Maeva Cousin of Bloomberg Economics

said.

Manufacturing has been a stronghold for Germany through the crisis as factories adapted more easily to health and safety restrictions than businesses that rely on face-to-face interactions. The sector makes up about a fifth of total output, and will likely help drive the recovery once global demand rebounds.

Restaurants, hotels and non-essential retailers will remain closed until at least the end of January.

Merkel has sounded private warnings

that another 10 weeks of lockdown might be necessary to curb a new variant of the coronavirus that risks driving up infections.

The Bundesbank remains optimistic though that Germany’s recovery will continue after an interruption in the winter half.

With economic confidence picking up across the euro area, European Central Bank president Christine Lagarde also expressed confidence in a rebound for the currency bloc this year.