German economy may see double-digit contraction in 2020, experts say

By Andreas Hoenig and Rachel More, dpa
Berlin (dpa) – Experts are agreed that the crisis year of 2020 will cause the German economy to drastically shrink, but a forecast released by one leading industry body on Tuesday went far beyond the government’s own already-bleak estimate.

Gross domestic product is expected to shrink by at least 10 per cent this year, Eric Schweitzer, president of the Association of German Chambers of Industry and Commerce (DIHK), said in a video conference.

The outlook also foresees a heavy blow to Germany’s export-focused economy as demand falls, with exports forecast to plunge by 15 per cent.

Schweitzer noted that the current situation bears all the hallmarks of an economic crisis.

The current government estimate is of a 6.3-per-cent decline in GDP for Europe’s largest economy this year. That would already be the worst recession seen in the country’s post-war history.

Germany officially entered a recession in the first quarter, when GDP contracted by 2.2 per cent compared to the previous three months, the Federal Statistical Office (Destatis) announced on Friday.

The DIHK is expecting the economy to pick up again in 2021, although not at the rate needed to recover the previous year’s losses, with 5-per-cent growth forecast.

The Ifo economic institute announced on Tuesday a forecast of 7.2 per cent growth in 2021, after an expected 7.1-per-cent decline this year.

The Munich-based economists said the German economy would only return to pre-crisis levels in the second half of next year.

“However, this is far from making up for the consequences of the crisis, as economic activity will still be noticeably below the level that would have resulted without the effects of the coronavirus pandemic,” said IfW economic researcher Stefan Kooths.

“All in all, the crisis will probably cost Germany around 300 billion euros in added value,” he added.

However, there was at least some indication of the situation improving on Tuesday, as sweeping anti-coronavirus closures and restrictions put in place in mid-March have been gradually lifted in recent weeks due to falling infection numbers.

The ZEW institute reported an improvement for the second month running in its economic sentiment indicator, based on a survey of financial market experts regarding their six-month expectations.

The index continued to recover in May, going up by 22.8 points to 51, after a collapse in the economists’ outlook in March.

Their assessment of the current situation remained gloomy, although that indicator only slightly fell by 2 points to minus 93.5.

“Optimism is growing that there will be an economic turnaround from summer onwards,” ZEW President Achim Wambach said.

“However, the catching-up process will take a long time. Only in 2022 will economic output return to the level of 2019,” he added.