Germany predicted the economic damage caused by the coronavirus pandemic to be less drastic than previously feared, but sinking overseas demand is most likely to drag the largest Europe economy to a weaker rebound next year. As the government forecast updated, Economy Minister Peter Altmaier said the stronger government response was helping the recovery run quicker than expected. As the recession in Q1 was less severe than initially feared, the worst was over for Germany’s economy. At least for now, overall it can be said that the country’s dealing with a V-shaped rebound, Altmaier said, and added that another round of lockdown measures as in March and April are not expected to be enforced.
Berlin also had revised upwards its 2020 GDP forecast to a -5.8% from the previous estimate of -6.8%. The numbers would still represent the biggest economic decline since WW II, and German economy had contracted by -5.7% in 2009 in the global financial crisis.
The government also revised down its growth forecast for 2021 from a 5.2% earlier estimate to a 4.4% expansion, which means the pre-pandemic size will not be reached before early 2022. Berlin also expected the exports to be declined by 12.1% this year, before growing by 8.8% in 2021. Private consumption also seen sliding down by 6.9% in 2020 before increasing by 4.7% in 2021.
The forecast that had been revised will be the basis of tax revenue estimation, scheduled to be updated in a few days by the finance ministry, and followed by Finance Minister Olaf Scholz’s federal government budget proposal in 2021. Scholz had asked parliament to suspend the constitutionally preserved debt limit for next year so that the government has a way to plan the 2021 budget with the new debt as it deemed necessary.
Germany’s Bundestag, or lower house of parliament, had suspended the debt limit in the month of March and June this year to allow the government borrow an additional 217.8 billion euros. The German government also launched an uncommon series of stimulus measures since March to rescue and shield consumers and companies from the pandemic-induced economic impact and help to achieve the quickest recovery.
Germany’s economy contracted by a record 9.7% in the Q2 as concurrent collapsing in company investment, exports and consumer spending took its toll. However, the country happens to manage the crisis better than some of its Euro zone neighbors. French economy contracted by 13.8% quarter-to-quarter in Q2, while Italy's economy slumped by 12.8%.
The central bank of Germany is projecting household spending to lead a stronger recovery in Q3, as the stimulus measures and temporary cut in value-added tax will help. The Ifo economic institute foresee a rebound in the economy with a growth around 7% in the July-September quarter.
