Germany to dodge eurozone double-dip recession

Russell Lynch
·2 min read
Merkel
Merkel

Germany is on course to avoid the double-dip recession likely to engulf the wider eurozone, figures revealed on Thursday.

Its statistics office said Europe’s biggest economy flatlined in the final three months of 2020, with a 5pc decline for the overall year.

While 2020’s decline is the biggest since the 5.7pc contraction following the 2009 financial crisis, Germany has been shielded by the faster recovery in Asian markets, protecting its manufacturing sector.

Its fall in growth is far less severe than the 9pc tumble expected for France and Italy, while the UK could chalk up a slump of more than 10pc across 2020.

Germany also ran its biggest deficit since the aftermath of unification to help cushion the blow of the pandemic. Borrowing stood at 4.8pc, the highest rate since 1995.

Florian Hense, European economist at Berenberg, said: “The high share of the relatively robustly growing manufacturing sector offset the damage from the ever tightening restrictions to service providers. The rest of the Eurozone will unlikely get away that lightly. We expect the French economy to have contracted by 4.1pc, Italy by 3.5pc and Spain by 3.5pc in the fourth quarter.”

Prospects look bleaker for the current quarter, however, after Chancellor Angela Merkel closed restaurants, hotels and non-essential retailers until at least the end of January, while a slow start to vaccinations is adding to uncertainty.

She has signalled that 10 weeks of lockdown could be needed to bring the new strain under control. Germany has also approved stricter controls on people entering the country this week after identifying cases of the faster-spreading Covid-19 variant.

The country’s daily death toll hit a record 1,244 this week, bringing total fatalities since the start of the pandemic to 43,881.

But experts at Germany’s Ifo economic thinktank predicted a “rapid and strong recovery” when restrictions are eventually eased.

Its economist Timo Wollmershäuser said: “If consumer behaviour also largely returns to normal by the summer, for example because the Covid-19 vaccination campaign is well advanced, then production of goods and provision of services could return to pre-crisis levels as early as the second half of the year.”

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Both the Ifo and economists at Germany’s Commerzbank believe the economy could expand by 4.5pc in 2021. Economist Jorg Kramer said: “On the one hand, manufacturing received tailwinds from strong foreign demand, to which China contributes significantly. On the other hand, companies have meanwhile learned how to deal with Corona.

"With home offices and hygiene concepts in the factories, they have managed to ramp up their business activities again and keep the risks for their employees low.”

Figures earlier this week showed a 2.3pc jump in industrial orders in November, while manufacturing production rose 0.9pc.