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German economy shrank by 5% in 2020

January 14, 2021

The coronavirus pandemic caused German economy to shrank "dramatically" according to Economy Minister Peter Altmaier, although the drop was smaller than expected.

Workers on the Porsche production line in Stuttgart
Image: Marijn Murat/dpa/picture alliance

Europe's biggest economy shrunk by 5% last year, with large parts of economic and public life having been shut down across much of 2020.

However, the figures from Germany's Federal Statistical Office (Destatis) published on Thursday showed the economy fared relatively well compared with some other European nations, thanks in part to the country's resilient manufacturing base.

The drop in gross domestic product (GDP) was also smaller than analysts had predicted and less severe than the record contraction of -5.7% in 2009 during the global financial crisis.

The data showed export dropping massively parallel to companies slashing investments and consumers throttling spending. However, Statistics Office President Georg Thiel said that state efforts including economic stimuli helped prevent "an even more severe and more pronounced slump in economic output.

Economy minister says 'growth will be significant'

The decline in 2020 was illustrated by "dramatically high figures," said Economy Minister Peter Altmaier, but he forecast improvement in 2021: "I firmly believe that the growth will be significant and noticeable." 

The second lockdown from November had had less impact on the real economy than the lockdown in the spring of 2020Altmaier added. 

The head of economic development at the Kiel-based IfW economy institute, Stefan Kooths said: "If the vaccines deliver on their promise, economic output will start to pick up strongly in the [European] spring." 

Germany still ahead other big EU states

The manufacturing sector is thought to have partly offset a slump in the service sector, with industry having rebounded strongly from the lockdown launched in March and April. Despite this, the restrictions did have an impact across the board.

"Almost all economic sectors were markedly affected by the coronavirus pandemic," Destatis said.

The slump is significant after Germany's economy grew by 0.6% in 2019. However, it compares favorably with predictions for France, Italy and Spain, where the European Central Bank forecasts GDP to have declined by 9.3%, 9.0% and 11.1%, respectively.

Vaccine hopes float markets

Production has largely been excluded from Germany's latest lockdown measures introduced in November and extended to the end of January. Anti-coronavirus steps have instead been principally aimed at curbing infections via the service sector and private sphere.

Factories have stayed open during the more recent shutdowns, allowing production lines to keep rolling.

As hope spreads that new vaccines will help the world put the coronavirus in the rearview mirror, Germany's leading DAX index reached a new high of just over 14,000 points on Thursday before it dropped to 13,968.24.   

Figures released earlier this month show that Germany's labor market remained stable in December. 

The government ordered most nonessential businesses to close over the Christmas period, prompting employers to tap a state scheme that allows them to slash working hours and avoid layoffs.

rc,ipj/sms (dpa, AFP, Reuters)