Germany: Economy collapses by five percent in the Corona crisis

Economic performance in Germany collapsed massively in the corona crisis year 2020.  The  gross domestic product (GDP) shrank by 5.0 percent compared to the previous year, as the Federal Statistical Office announced on Thursday in an initial estimate. ©

 The  German economy has thus fallen into a deep recession after a ten-year growth phase in the corona crisis year 2020. ©

 The  slump is not as severe as in the global financial and economic crisis in 2009: At that time, GDP had declined by 5.7 percent. Analysts had expected an average decrease of 5.2 percent.

State budget with 158 billion in the red

In addition, there was the first budget deficit for the full year since 2011: According to the Wiesbaden authority, the federal government, states, municipalities and social security funds spent 158.2 billion euros more than they received last year. In relation to total economic output, the deficit was 4.8 percent. That was the second-highest deficit since German reunification, only exceeded by the record deficit of 1995, when the Treuhand debts were taken over into the state budget.

At the same time, the state’s income fell. Tax revenue decreased, also because VAT was cut for six months from July 1st to stimulate private consumption. At the same time, government spending increased, among other things due to aid packages worth billions.

Consumer spending decreased by 6 percent


 The  corona crisis left its mark in almost all areas of the economy: Both industry and service sectors were hit hard, only the construction industry grew.

In contrast to the situation during the financial and economic crisis, when overall consumption supported the economy, private consumer spending declined by 6.0 percent year-on-year – more than ever before. In contrast, government consumer spending had a stabilizing effect, with a price-adjusted increase of 3.4 percent. According to statistics, the procurement of protective equipment and hospital services contributed to this.

Exports and imports of goods and services fell in 2020 for the first time since 2009, the authority said. Adjusted for price, exports shrank by 9.9 percent and imports by 8.6 percent.

This ended the 14-year increase in employment due to the corona pandemic, which even survived the financial and economic crisis of 2008/2009, as statisticians pointed out. Marginally employed people and the self-employed were particularly affected.

Strong comeback of the German economy expected

A number of economists are predicting a strong comeback for Europe’s largest economy this year – despite the lockdown that was initially extended to the end of January. ©

 The  upswing in the manufacturing industry is still intact and, in terms of foreign trade, there is growth impetus from demand from China and the USA, argued Lars Feld, for example, recently the head of the Advisory Council on Economic Development.

Most economists are currently expecting the German economy to return to the level it was before the corona crisis at the turn of the year 2021/2022 at the earliest – provided that so many people have been vaccinated against the corona virus by then that economic life returns to normal.

No deficit problems with Brussels

Germany does not face problems with Brussels because of the deficit. Because of the corona crisis, the EU states suspended the rules of the Stability and Growth Pact for the first time, according to which the budget deficit must not exceed three percent and the total debt must not exceed 60 percent of the gross domestic product.
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Germany Economy collapses percent Corona crisis

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