But business leaders think the worst may be over
IT WAS EVEN worse than expected. On July 30th Destatis, Germany's federal statistics agency, announced that the economy shrank by 10.1% within the second quarter, compared with the first-largely caused by the government's measures to retain the spread of covid-19. The drop was the deepest in two a century. Destatis also reported associated slumps in exports and imports, household consumption and investment in machinery and equipment.
The plunge in output returned GDP to where it was 10 years ago. Even so, according to Florian Hense, an economist at Berenberg, a German private bank, it “could happen to be much worse”. Germany's lockdown was softer and shorter compared to other Countries in europe. Moreover the federal government responded and among the most comprehensive fiscal stimuli around the world, writes Mr Hense, which further cushioned the blow to the economy and accelerated its recovery. On the day after the grim German announcement France, Italy and Spain reported even sharper contractions, of 13.8%, 12.Four percent and 18.5% respectively.
Nearly every business feel the pinch. The second-quarter reporting season, now halfway through, continues to be miserable. Heidelberg Cement, a maker of concrete, made a lack of EUR3bn in the first half of 2023, in contrast to a profit of EUR290m a year earlier. Volkswagen (VW), Europe's biggest carmaker, lost EUR1.4bn, against an income of EUR9.6bn, and said car sales had came by 27% to three.9m vehicles. And BASF, the earth's biggest chemicals company, said that sales slumped by 12%, every year, in the second quarter, chiefly because demand in the car industry had collapsed. It too reported an internet loss of EUR878m, having raked in almost EUR6bn in the same quarter in 2023. This week Lufthansa, the national airline, Siemens, a giant engineering company, and others report, probably intensifying the gloom.
Business leaders are pinning their hopes with an economic recovery in the third quarter, let's assume that a resurgence of coronavirus infections will not lead to another lockdown from the economy. The government's stimulus in excess of EUR130bn-equivalent to 3.8% of last year's GDP-including a brief cut of value-added tax to enhance domestic demand, should assist the economy go back to growth. The ecu Union's EUR750bn package (that Germany will be a big contributor) should help further by boosting German exports within the bloc. Peter Altmaier, the economy minister, thinks the economy will begin to grow again in October “at the latest”. He expects it to shrink by 6.3% this season but to develop by 5.2% next year. Still, it will not reattain its pre-crisis level until 2023 at the earliest.
One ray of light is unemployment, which held steady at 6.4% in July, with 18,000 fewer people out of work compared to June. For that, credit the nation's Kurzarbeit, short-time work schemes which help companies keep staff employed at reduced (or perhaps no) hours as the state pays the bulk of salaries. About 6.7m personnel are enrolled. Prior to the pandemic unemployment was at an archive post-reunification low, hovering at 5%. Skilled workers particularly were scarce.
Retail sales have been recovering, jumping by 12.7% in May after most shops were closed in March and April. Industrial production rose around 10.4% in the same month, according to Destatis. German business leaders are cautiously optimistic that the worst is behind them. Ola K”allenius, the chairman of Daimler, another big carmaker, said recently he had spotted the very first indications of a recovery of sales. VW thinks that in spite of its disastrous second quarter it will likely be profitable this season.
On July 21st HSBC, an international bank, published a survey of 2,600 firms with sales in excess of $5bn in 14 countries. It suggested that the 200 German firms included should weather the crisis much better than those elsewhere: 53% of them said they were strongly impacted by the pandemic, in contrast to 72% within the other 13 countries (including America, Britain, Canada, China, France and Mexico). Maybe. Most German companies are extremely determined by exports. Their fate will depend on the recovery of economies-and the taming from the virus-in the rest of the world.
From The Economist, published under licence. The original article in English are available on www.economist.com
