Germany’s recession wasn’t as bad as 2009

Germany’s economy held up better in the pandemic than it did during the global financial crisis, despite a second wave of lockdowns in the fourth quarter and the reversal of more than a decade’s growth in employment and trade.

The country’s Federal Statistics Office on Thursday forecast a 5% contraction in the economy in 2020 compared to the previous year, based on provisional GDP estimates. By comparison, Europe’s biggest economy shrank 5.7% in 2009 during the recession that followed the financial crisis, it said in a statement.

Nearly all major sectors with the exception of construction suffered a decline last year.

Spending by households tumbled and business investment shrank the most since the financial crisis. Exports and imports of goods and services decreased for the first time since 2009, shrinking 9.9% and 8.6% respectively.

But the shallower than expected drop in GDP demonstrates the value of Germany’s industrial backbone, which makes it less reliant on services and consumption than countries such as the United States, United Kingdom, France, Italy and Spain.

“Apparently, strength in the export-oriented manufacturing sector offset the effects of the lockdown,” Commerzbank chief economist Jörg Krämer wrote in a note to clients on Thursday.

The German government shut restaurants, bars and clubs for the second time from the beginning of November in an attempt to curb a rise in coronavirus cases. Non-essential shops, services and schools were shuttered in the middle of December and remain closed.

“Germany’s outperformance reflects its comparatively light lockdown during the first wave of Covid-19, low share of tourism and hospitality in the economy, strong export sector, and generous fiscal support,” added Capital Economics chief economist, Andrew Kenningham.

The German government approved a stimulus package worth €130 billion ($158 billion) in June to stabilize the economy and kickstart the recovery. It has also kept unemployment under control thanks to short-time work programs — subsidized by the state — that allow companies to reduce employees’ hours and wages.

The pandemic brought job creation to an abrupt end after 14 years of uninterrupted growth, according to the statistics agency. Germany shed 477,000 jobs out of 44.8 million in 2020, lifting the unemployment rate to 4%. That’s a far cry from the United States, where millions of workers remain unemployed and the unemployment rate was at 6.7% in December.

The near term outlook for Germany’s economy is less encouraging, however.

Lockdown restrictions remain in place and German Chancellor Angela Merkel warned this week that they may not be eased for several weeks.

“While it currently looks as if the German economy avoided a black eye in the final quarter of 2020, it is hard to see how it can perform the same magic again in the first quarter,” Carsten Brzeski, global head of macro economic research at ING, wrote in a note.

“Economic activity is likely to decline again in the first quarter,” added Kenningham. “While manufacturers should continue to benefit from strong external demand, the scope for catch-up growth will decline as output gets closer to its pre-pandemic level.”

Still, economists expect GDP to pick up strongly once vaccines are more widespread and warmer weather means people spend more time outdoors, where the virus is less easily spread.

Lockdowns have also boosted domestic savings, which could juice the economy further if households spend some of the extra money, said Commerzbank’s Krämer.

That should allow German GDP to return to its pre-pandemic level by the final quarter of 2021, six to nine months before the wider European economy, Kenningham added.