Germany expects record recession in 2020 due to coronavirus pandemic

The coronavirus pandemic will plunge Germany's economy into its deepest recession since World War Two, Economy Minister Peter Altmaier said on Wednesday as the government cut its economic growth forecast for this year.

"We're facing major challenges, both economically and politically," Altmaier told reporters in Berlin, presenting the government's updated growth forecast for Europe's largest economy.

Berlin cut its estimate for gross domestic product (GDP) growth in 2020 to -6.3% from +1.1% predicted in January. It expects the recession to bottom out in the second quarter and economic activity to pick up again after that, provided a second wave of infections can be avoided.

For 2021, the government expects the economy to rebound with an expansion rate of +5.2%. The forecasts are based on the assumption that authorities can gradually unwind lockdown measures imposed to contain the spread of the coronavirus.

Altmaier said Germany should not rush to ease the lockdown measures as this would increase the risk of a second wave of coronavirus infections, which could hamper the expected economic recovery in the second half of the year.

"Because only if we lift economic and social restrictions step-by-step, and with a sense of proportion, can we start with the slow recovery in the second half of year," Altmaier said.

Europe's most populous country has 157,641 confirmed coronavirus cases and 6,115 deaths, according to data from the Robert Koch Institute for infectious diseases.

The government expects consumer price inflation to drop to 0.5% in 2020 and rebound to 1.5% in 2021.

Unemployment is seen rising to 2.62 million in 2020 from an average 2.27 million in 2019, with the number of people working reduced or zero hours under the government's expanded Kurzarbeit short-time work schemes expected to soar to 3 million.

Further Measures

Altmaier said the government was considering further measures to help sectors that have been hit particularly hard, such as restaurants, catering and the trade fair industry.

The minister also underlined Berlin's plans for a post-crisis stimulus package to support the economic recovery, adding that the government wanted to support private consumption.

Proposals discussed by senior members of Chancellor Angela Merkel's ruling coalition for the stimulus package include a higher cash incentive for buying electric cars.

The VDA car lobby group wants any cash incentives to also include vehicles with combustion engines. But Merkel has made clear that she wants to combine the task of helping companies recover from the pandemic with the challenge of reducing carbon emissions.

Germany has already approved an initial rescue package worth over 750 billion euros to mitigate the impact of the coronavirus outbreak, with the government this year taking on new debt for the first time since 2013.

The first package agreed in March comprises a debt-financed supplementary budget of 156 billion euros and a stabilisation fund worth 600 billion euros for loans to struggling businesses and direct stakes in companies.