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Coronavirus: Germany faces biggest quarterly drop in GDP since 1970

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·2-min read
Cranes at Hamburg Port, Germany
Cranes at Hamburg Port, Germany's biggest container port. (Stuart Franklin/Getty Images)

Germany is on the precipice of the worst quarterly economic slump ever measured, according to the country’s leading economic research institutes.

In their spring report published on Wednesday 8 April, the Munich based Ifo Institute for Economic Research said (link in German) that economic output will shrink by 4.2% this year. They predict recovery in 2021, however, with growth of 5.8%.

The Ifo said it expects GDP to have fallen by 1.9 % in the first quarter of 2020, and by 9.8% in the second quarter as a result of the country-wide shutdown.

“This is the strongest decline in Germany ever recorded since the beginning of the quarterly accounts in 1970 and more than twice as large as that during the global financial crisis in the first quarter of 2009,” the Ifo notes.

Read more: German car industry prospects bleakest since 2009

"The recession is clearly leaving its mark on the labour market and in the state budget," Ifo chief economist Timo Wollmershäuser said. "At the top, the unemployment rate will skyrocket this year to 5.9 % and the number of short-time workers to 2.4 million."

The institute expects unemployment rate will increase by almost a quarter million to 2.5 million compared with 2019.

"Germany is in a good condition to cope with the economic slump and to return to the economic level in the medium term where it would have been without the crisis," Wollmershäuser said.

Read more: Germany bids goodbye to ‘black zero’ with €750bn coronavirus package

The country’s strong financial situation enables the state to take extensive measures to mitigate the short-term negative consequences for companies and households, the economists said, though this year will lead to a record deficit for the state as a whole (federal, state, local, social security) of €159bn (£140bn, $173bn).

The IFO notes that its prognosis comes with significant unforeseen risks, such as the pandemic lasting longer than expected, or a second wave of infections after the economy restarts again.