German economy contracts by record 9.7% in Q2

BERLIN • The German economy contracted by a record 9.7 per cent in the second quarter from the previous three months as consumer spending, company investments and exports all collapsed at the height of the Covid-19 pandemic, the statistics office said yesterday.

The economic slump was much stronger than during the financial crisis more than a decade ago, and it represented the sharpest decline since Germany began to record quarterly gross domestic product calculations in 1970, the office said.

Still, the reading marked a minor upward revision from an earlier estimate for the April-June period of minus 10.1 per cent that the office had published last month.

Consumer spending shrank by 10.9 per cent on the quarter, capital investments by 19.6 per cent and exports by 20.3 per cent, seasonally adjusted data showed.

Construction activity, normally a consistent growth driver for the German economy, fell by 4.2 per cent on the quarter.

"The second quarter was a complete disaster," VP Bank economist Thomas Gitzel said.

"Regardless of whether it is about investments, private consumption, exports or even imports - everything was in free fall."

The only bright spot was state consumption, which rose by 1.5 per cent on the quarter due to the government's coronavirus rescue programmes, the office said.

The German Parliament has suspended the debt brake this year to allow the government to finance its crisis response and fiscal stimulus push with record new debt of €217.8 billion (S$352 billion).

The fiscal U-turn after years of balanced budgets means that the German state recorded a budget deficit of €51.6 billion from January to June, the statistics office said in a separate statement.

That represents a deficit of 3.2 per cent of economic output as measured by the Europeans Union's Maastricht criteria.

Employment edged down 1.3 per cent on the year to 44.7 million in a sign that the government's efforts to shield the labour market from the coronavirus shock with its short-time work programme are paying off.

The relatively mild impact of the crisis on employment helped to stabilise income for many households, which, together with the reluctance to consume, led to a considerable increase in household saving.

The savings rate almost doubled to 20.1 per cent in the second quarter compared with the previous year, the office said.

Germany's stimulus measures include a temporary value-added tax cut from last month to December worth up to €20 billion, which Berlin hopes will give household spending an additional push.

REUTERS