Germany’s economy shrank by 5% last year, according to official figures, among the smallest declines anticipated in Europe despite the coronavirus pandemic causing the deepest recession since the 2008 financial crisis.
The German recession is expected to be among the least severe in Europe, with analysts crediting a decisive fiscal response and the avoidance of overly optimistic forecasts. By comparison, national output is expected to drop by more than 9% in Italy and France, and by 11.3% in the UK – the worst performance for more than 300 years.
Analysts said the composition of Germany’s economy helped it record a stronger performance than many close neighbours, its bigger manufacturing and exporting base able to continue operating with fewer disruptions than the service-sector heavy economy of the UK.
Industrial production accounts for more than a quarter of the German economy, compared with about a tenth of the UK economy. In the UK, social consumption – face-to-face spending on goods, services and activities which suffer more from physical-distancing restrictions – is higher than in other major economies, Bank of England figures show.
The German national statistics office said Germany’s gross domestic product (GDP) fell 5% in 2020, compared with the previous year, as the pandemic ended a 10-year growth period with a decline similar to the one caused by the financial crisis in 2008-09. However, the recession caused by Covid was less severe, according to the provisional estimates. German GDP fell by 5.7% in 2009.
Tomas Dvorak, an economist at the consultancy Oxford Economics, said the UK was particularly hard hit during the first wave of the coronavirus crisis. The delayed introduction of lockdown necessitated tougher restrictions that then remained in place for longer than other countries, causing a more severe downturn, he said. UK GDP fell by 19% in the second quarter of 2020 – among the worst performances in the developed world.
Comparing the two countries further, Dvorak said: “Germany has also been more decisive with its fiscal response, even if the overall size of the stimulus wasn’t massive, and they avoided the ‘cliff-edges’ of giving overlyoptimistic deadlines for withdrawal of the furlough scheme.”
Germany’s emergency response to the crisis, offering tax cuts and pumping billions of euros in additional spending into Europe’s largest economy, accounted for about 4.3% of its €3.3tn (£2.9tn) economy, according to Andrew Kenningham, the chief Europe economist at the consultancy Capital Economics. This compares with support worth 12.4% of the UK’s £2.2tn economy. “Of course, Germany has not needed to provide as much support because the economy has not been hit as hard,” he said.
Under the German system of wage subsidies to protect workers’ jobs – similar to the UK furlough scheme – the peak number of people accessing the support was the equivalent of 12.6% of the labour force, compared…
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