A freight train loaded with cars stands at Hamburg Port during the pandemic
Germany’s statistical office said a ‘massive slump’ in exports and imports of goods, household spending and capital formation had been offset to an extent by higher government spending © Getty Images

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Germany’s gross domestic product shrank at the fastest pace in half a century in the second quarter of 2020, according to preliminary data that confirm the depth of the recession in Europe’s largest economy.

GDP contracted 10.1 per cent quarter-on-quarter, the largest decline since quarterly calculations began in 1970 — and far bigger than the fall at the height of the global financial crisis, the national statistical agency said on Tuesday. Its flash estimate of the year-on-year fall in GDP in the second quarter, at 11.7 per cent, was also the largest on record.

The contraction in output was worse than analysts had expected, and underlines the challenge facing European policymakers as fears grow over a second wave of infections that could delay the economic recovery.

The plunge in output had “wiped out nearly 10 years of growth”, said Florian Hense, economist at Berenberg, although he added that it “could have been much worse”. Germany’s lockdown to contain the pandemic was softer and shorter than in other European nations, and it has a “vast” fiscal and monetary policy stimulus in the pipeline, he said.

Germany’s statistical office said a “massive slump” in exports and imports of goods, household spending and capital formation had been offset to an extent by higher government spending.

Line chart of German gross domestic product (rebased to 100) showing Coronavirus pandemic plunges German economy into record slump

It also revised its previous estimate of first-quarter GDP upwards; Germany’s economy is now thought to have shrunk 2 per cent quarter-on-quarter at the start of the year, rather than 2.2 per cent.

Carsten Brzeski, an economist at ING, said the data “marks the trough of the crisis”, adding that “compared with the last few months, the coming weeks could actually feel like a joyride”.

But Germany has been less affected by the virus than other European countries and second-quarter output data due on Friday could reveal much deeper downturns in other parts of the continent. Analysts polled by Reuters expect the figures to show a quarter-on-quarter contraction of 15 per cent in France and Italy, and 12 per cent for the eurozone as a whole.

The European Commission’s monthly survey of economic sentiment rose in July for the third month in a row, with the sharpest gains in industry and services, suggesting the continent’s economy has begun to rebound from the depths of the downturn.

Line chart of Economic sentiment indicator (Long term average = 100) showing Eurozone sentiment rebound gathers pace

But high frequency data indicators suggest the recent pick-up in activity across Europe’s biggest economies may be waning and a recent rise in cases of the virus could also drag on the recovery. The commission survey found that consumers remained gloomy in July.

Jessica Hinds, European economist at Capital Economics, said: “With high frequency data and consumer confidence suggesting that the revival in consumer spending is already losing pace, business sentiment and activity may soon follow suit, particularly if governments impose measures to curb the latest rise in virus cases.”

Labour market data released on Thursday reflected the patchy nature of the recovery.

Germany’s unemployment rate was steady at 6.4 per cent in July, seasonally adjusted figures from the Federal Employment Agency showed, with 18,000 fewer people out of work than the previous month.

Line chart of European Commission consumer confidence survey (net balance) showing Eurozone consumers remain gloomy

The latest figures from Italy, for June, which are calculated on a different basis, showed the jobless rate rising 0.5 percentage points to 8.8 per cent as the easing of lockdown measures allowed dismissed workers to start job hunting. The economic inactivity rate fell to 36.8 per cent, from 37.1 per cent the previous month.

The EU unemployment rate increased to 7.1 per cent in June from 7 per cent the previous month, Eurostat said. The number of people out of work across the EU rose above 15m; young people and women were disproportionately affected.

Job losses across Europe have been limited by government schemes to subsidise wage costs, but analysts have warned that unemployment is likely to rise when governments start to scale back support in the second half of the year.

Monetary policymakers believe fear of unemployment, along with continued fears over the risks of infection, is likely to hold back consumer demand and weigh down on inflation across Europe. Data so far suggest that price rises have been confined to food and other staples.

German consumer prices contracted by 0.5 per cent month on month in July, from a rise of 0.7 per cent in the previous month, according to preliminary figures from Germany’s Federal Statistics Office. The figure, released on Thursday, was lower than the -0.2 per cent anticipated by a group of economists polled by Reuters. On an annual basis inflation was flat.

Separate figures released by Spain’s National Statistics Institute on Thursday showed that consumer prices fell by 0.7 per cent in July from a year earlier, more than expected after a 0.3 per cent annual fall in June.

The fall reflected lower energy prices and weak demand in sectors hard hit by the pandemic, while food and drink prices rose.

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