German economic growth contracts in Q1 2020, likely to shrink deeper in Q2

German economy shrank in the first quarter of 2020, as was expected. The nation’s GDP contracted 2.2 percent, in line with consensus expectations of 2.2 percent. Although only March was significantly impacted by Corona, it was the second worst quarter since German unification.

According to the Statisticians, private consumption, investment in machinery & equipment and foreign trade were the main areas massively impacted. On the contrary, government consumption and construction investments had a stabilizing effect, noted Commerzbank in a research report.

There were minor revisions made to the previous quarters’ data. The statisticians have revised the fourth quarter from 0.0 percent down to -0.1 percent. On the contrary, they have upwardly revised growth for the third quarter by 0.1 percentage points to 0.3 percent.

Since 20 April, most retail stores have been permitted to open again, further relief followed. Nevertheless, clear rebound in economic activity has so far only been seen in the use of public transport. On the contrary, truck traffic has rebounded only slightly based on toll data up to May 9. This also applies to the retail sector beyond food.

“However, we have probably passed the low point of economic activity in the meantime. From now on, things should go up. In May or June, industrial production could pick up considerably, simply because automobile production. Even if production will slowly recover from now on, the slump in March and especially April will result in a significant decline in GDP in the second quarter; we expect a minus of 11.5 percent compared to the first quarter. The slump would be more than twice as severe as in the first quarter of 2009 during the financial crisis (-4.7 percent). For 2020 as a whole, we expect GDP to decline by 5.5 percent”, added Commerzbank.