VW re-starts Europe's largest car factory after coronavirus shutdown. REUTERS

The German economy plunged into a recession after suffering its steepest quarterly contraction since the 2009 financial crisis as shops and factories were shut down in mid-March to fight the spread of the coronavirus, preliminary data showed on Friday.

The 2.2% first-quarter contraction was a foretaste of worse to come. Economists expect a deeper slump in the second quarter as the lockdown extended well into April and early May and sectors like tourism and in-door gastronomy remain shut.

Still, Germany appears to be fairing better than neighbouring France and Italy, whose economies contracted by 5.8% and 4.7% respectively in the first quarter.

This is partly due to a decision by Germany’s 16 states to allow factories and construction sites to stay open and an unprecedented rescue package by Chancellor Angela Merkel’s government, including state aid that allows employers to switch employees to shorter working hours to avoid mass layoffs.

Output data for the fourth quarter was revised to a contraction of 0.1% from a previously reported stagnation, which meant Germany was technically in a recession after two successive quarterly output slumps, the data showed.

“Things will get worse before they get better,” Carsten Brzeski of ING said. “To be more precise, incoming data will be worse, even though the worst might already be behind us.”

He added: “If today’s data are the result of two weeks of lockdown, three more weeks of lockdown and a very gradual lifting of some measures do not bode well for the second quarter.”

On the year, gross domestic product in Europe’s largest economy fell by 2.3% from January to March after a 0.4% expansion in the previous three months, seasonally adjusted figures from the Federal Statistics Office showed.

Analysts polled by Reuters had expected national output to shrink by 2.2% quarter-on-quarter and a 2% contraction year-on-year in seasonally adjusted terms.

SOURCE: REUTERS

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