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Central bank expects ‘very strong’ German economic growth this summer

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·2-min read
15 June 2020, Hamburg: The container freighter "Al Jasrah" (l) and the container freighter "Alexander von Humboldt" are unloaded at Terminal Burchardkai (l) and at Eurogate (r) Hamburg's exports fell sharply in the first three months of the year. Compared with the same period last year, exports fell by 14.1 per cent to 10.5 billion euros, the Statistics Office North announced in the Hanseatic City on 16 June 2020. Photo: Axel Heimken/dpa (Photo by Axel Heimken/picture alliance via Getty Images)
German exports could still be affected by global uncertainty over COVID-19 Photo: Axel Heimken/picture alliance via Getty Images

The German central bank said on Monday that Europe’s largest economy is likely to grow “very strongly” this summer, after its sharp slump in the first half of the year.

In its monthly report, the Bundesbank said that from today’s perspective, the “clear and broad-based recovery in macroeconomic performance which began after the low in April, will continue.”

The German economy shrunk by a record 10.1% in the second quarter, as lockdowns lifted only at the start of May. GDP is forecast to contract by just over 6% in 2020.

READ MORE: UK economy officially enters recession after record 20.4% contraction

However, the Bundesbank notes that while the economy is improving, it will not catch up to pre-coronavirus levels in the summer, and it will be a way back to normality.

“There is also the big risk of setbacks, in particular with a view to the further course of the pandemic,” the central bankers wrote, adding that until there is a vaccine available, some parts of the service sector will remain restricted.

A number of European countries, including Germany, are currently experiencing increased in the number of COVID-19 cases, while others, like the US, are still seeing thousands of new virus cases daily.

Chancellor Angela Merkel’s deputy Olaf Scholz, said that he would like to see the country’s short-hours work scheme extended for a total of 24 months. The finance minister said business and employees need a clear signal that the government will be with them as long as the crisis continues.

READ MORE: Coronavirus: Merkel's deputy considers extending short-time work scheme until 2022

The ongoing global uncertainty surrounding the pandemic is affecting German exports and investor confidence, the Bundesbank said.

However, it believes that a growth in investments in equipment as well as a boost in consumer spending, thanks in part to the German government’s temporary VAT cuts, will help the economy recover in the third quarter.

The ZEW survey of investor sentiment last week in Germany found that optimism was growing that there would be a “speedy recovery” from the economic damage of the pandemic.

READ MORE: German investor morale rises on hopes of post-pandemic recovery