German economy shrinks 5 percent on virus hit in 2020

Germany's economy in 2020 suffered its biggest contraction since the 2009 financial crash, hit hard by the coronavirus pandemic, official data showed Thursday.

Output shrank 5.0 percent year-on-year, as "almost all economic sectors were markedly affected by the corona pandemic", federal statistics agency Destatis said.

However, the data betters the government's own forecasts, which anticipated a decline of 5.5 percent.

The downturn comes after a "10-year growth period", Destatis said.

In 2009, in the midst of the financial crash, gross domestic product (GDP) plunged 5.7 percent.

The first wave of the pandemic caused the worst quarterly drop in GDP on record when output plummeted 9.8 percent, in the three months to June.

But the economy recovered, expanding 8.5 percent in the third quarter, before slowing down again on a resurgence of the virus in the autumn.

Manufacturing, which accounts for about a quarter of the economy, suffered particularly, along with the services sector, Destatis said.

Online trade improved as physical retail trade declined substantially, the agency said, while restrictions closing hotels, restaurants and bars led to a dramatic decline in hospitality.

Like its neighbours, the country of 83 million people has been hit hard by a resurgence in coronavirus cases, prompting the shuttering of bars, gyms, cultural and leisure centres in November, followed by non-essential shops in December.

But unlike during the first wave in the spring, the latest restrictions do not close Germany's export-oriented factories or manufacturing businesses, meaning they have had less impact on the economy than earlier in the year.

Month-on-month, industrial orders jumped 2.3 percent in November, according to Destatis data, while manufacturing production rose 0.9 percent.

Both indicators have been rising for several months, buoyed by a recovery in demand from China where the virus has been largely contained.

"The German economy was less affected by the second round of restrictions than by the first," Georg Thiel, president of Destatis said.

"As we have had a lockdown again since November, this result must also be seen as a positive surprise," Uwe Burkert, head economist at LBBW, said.

However, a difficult period remains for Europe's largest economy, after German Health Minister Jens Spahn told parliament on Wednesday the current shutdowns would probably be extended into February.

Chancellor Angela Merkel has warned that the country faces "tough weeks" until Easter in early April.

Frankfurt am Main, Germany | AFP