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The Corona crisis affects national economies around the globe leading to reduced economic output across most sectors and industries.

According to the Federal Statistical Office (Destatis), price-adjusted gross domestic product (GDP) in Germany was -4.9% for the year 2020. The drop marks an end to ten years of sustained growth.

real GDP growth expectation

The gross domestic product (GDP) rose by 0.3% in the fourth quarter of 2020 compared with the third quarter of 2020. In the fourth quarter, the recovery process slowed due to a surge of new Covid-19 infections in Germany and the corresponding lockdown imposed by the German government from November onwards. The winter wave of coronavirus infections has meant new restrictions on travel and business activity, although companies in some sectors such as manufacturing have been better able to adjust than the hospitality business such as hotels and restaurants. Household consumption was notably affected, while exports of goods and gross fixed capital formation in construction back up the economy.

Compared to the European economy Germany fared slightly better, as the European economy shrank 0.7% in the last three months of 2020. The Eurozone will reach 2019 levels of economic output only in 2022. That contrasts with China, already having regained the pre-pandemic level of output, and with the U.S. where we foresee a rebound to 2019 levels already by the middle of this year.

Strong economic rebound expected in 2021

In 2021, we expect economic output in Germany to expand by 4.0 % year-on-year. Growth in the first quarter is currently expected to remain very weak due to the rising number of infections and renewed restrictions at the beginning of the year. However, as the second wave of infection subsides, and vaccines will become more easily available throughout Germany the economic recovery should continue at a somewhat faster pace.

Some industries will still be noticeably affected by the pandemic. However global recovery will continue to accelerate, especially in Germany’s most important markets overseas: in the U.S. as well as China. Beginning of May, private consumer spending is likely to grow rapidly as private households will normalize their savings rate.

Economic output at the end of 2021 would be minimally below the pre-crisis level in the fourth quarter of 2019.

GDP expectations 2021
Infographic Foreign Trade

Germany remains top trading nation in Europe

In December 2020, Germany exported goods valued at 100.7 billion euros and imported goods valued at 85.9 billion euros. Compared with December 2019, exports increased by 2.7% in December 2020 and imports by 3.5% respectively.

Overall, Germany exported goods to the value of 1,205 billion euros and imported goods to the value of 1,026 billion euros in 2020. Exports decreased by 9.3% and imports by 7.1%. This decline, as compared with 2019, were the largest year-on-year decreases in both exports and imports since the financial and economic crisis in 2009.

Germany is considered one of the most international economies globally. Around 50% of annual GDP are being exported to other countries making Germany one of the top three trading nations globally.

China led the world in exports in 2019 (2.5 trillion US dollars). China was followed by the United States, with exports valued at 1.6 trillion US dollars, and Germany, with exports valued at 1.5 trillion US dollars.

The economic effects of the pandemic abroad had a direct and significant impact on Germany’s export-oriented economic sectors. Global demand for German industrial exports fell sharply. In addition, disruptions to global supply chains put a strain on businesses. Due to these global developments, German exports and imports decreased over the past months.

For further information on transatlantic trade flows please visit "Umschwung im Weißen Haus – mehr Berechenbarkeit für transatlantische Handelsströme"

 

Employment

The coronavirus crisis abruptly brought to an end the more than decade-long upward trend in the German labour market in 2020. On average in 2020, around 44.8 million people were employed in Germany. According to the Federal Statistical Office the number was 477,000 or 1.1% lower than in 2019.

Increases in unemployment in Germany and elsewhere in Europe have been moderate by international standards because employers are making heavy use of short-time work programmes that allow them to keep employees on the payroll until the economy picks up. The unemployment rate will continue to rise in the coming months and will only start to decline in the 2nd quarter of 2021.

Slight signs of improvement are visible in the German labour market. However, the rising number of short-time workers, as well as the longer-term impact from the second lockdown, clearly argue against too much optimism. Before the coronavirus struck, Germany's unemployment rate had been at a record low of around 5%.

Infographic Unemployment Rate
Infographic Inflation Rate

Private consumption and investment

In the first half of 2020, the coronavirus pandemic caused a historic drop in GDP in Germany. Private households cut consumption by 10.9% in the second quarter. Investment in machinery and equipment fell particularly strongly by about 20%. The ifo Business Climate Index crashed from 85.9 points in March to 74.3 points in April. This is the lowest value ever recorded: never has the index fallen so drastically. In July and August, year-on-year consumer price inflation came to a standstill. The main reason for this was the temporary reduction of VAT from 19% to 16% until end 2020. A strong recovery emerged over the summer in many economic sectors. However, after the economy expanded strongly in the third quarter at a rate of 8.2 %, indicators for the winter season showed a slower pace of recovery. Economic activity in various services sectors is likely to decline again as a result of the strong resurgence in infection rates and the restrictions imposed at the end of October. 

The ifo Business Climate Index dropped to 90.1 points (seasonally adjusted) in January from 92.2 points in December. Companies assess their current situation and expectations as worse compared to the previous month. In the service sector, the business climate indicator was significantly lower. Companies adjusted their assessments of the current situation downward, especially in the transport and logistics sector.

Reduced value-added tax and falling energy costs are pushing the inflation rate to its lowest level since the start of 2015.

The inflation rate in Germany, measured as the year-on-year change in the consumer price index, is expected to be around 1% in January 2021, according to the Federal Statistical Office. In December 2020, annual inflation was minus 0.3% and in November minus 0.2%. Furthermore, prices are expected to rise by 0.8% compared with December 2020.

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