GDP - on a record rebound
The German economy saw a strong recovery during the third quarter, growing 8.2% compared to the previous quarter1. By October, the economy was operating at 96% of its pre-crisis level, with consumer spending, business investment and exports powering the economy. Despite the ‘V’ shape of the recovery so far, economic growth for 2020 is still forecast to be -5.5%2. This would be the biggest annual decline in the post-war period, outstripping the falls seen during the depth of the Global Financial Crisis. Despite this, Germany has fared much better than the rest of the Eurozone (Eurozone total for 2020: -7.5%3). During 2021, we expect to see a continued recovery, although the economy is not expected to be back to ‘BC ‘levels until 2022. The widespread early implementation of a vaccine presents some upside to this and would see the economy recover faster. Having said that, second lockdowns both at home and across Europe, as we grapple with keeping the virus under control, present a downside risk. The economic impact will be much smaller than in the spring but they are likely to trigger a GDP fall in Q4.
German labour market stays on track
The Government response to support the labour market through the initial lockdown was swift and effective. Whilst there has been an unsurprising rise in unemployment, it has been from a low base, with the rate at just 6% in October. The short-term work scheme can certainly claim some success. The number of job advertisements has been relatively robust, continues to rise and is significantly higher than during the Financial Crisis. Projections from Consensus Economics suggest that unemployment will peak at current levels, compared to the Eurozone where the unemployment rate is predicted to increase to 8.4% by the end of the year and to 9.3% by the end of 2021.
Following restrictions the Government committed to a strong fiscal aid package supporting employment and businesses with 1.5 trillion euros through to the end of 2021.4
Economic and political strength bring security
Following the increased restrictions as a result of a second spike in infections, the Federal Government once again acted decisively, committing to a strong fiscal aid package. This will support employment and businesses to the tune of almost 1.5 trillion euros through to the end of 20214.
The ‘black zero’ policy in place for the last number of years has meant that Germany has gone into the crisis on a solid financial footing. The country has been somewhat ‘fortunate’ – the tourism sector, which has been decimated across the globe, accounts for a relatively small proportion of the economy. Whilst there are still the significant headwinds of supply chain disruption and Brexit to deal with, the country is in relatively good stead. A risk may, however, arise from the expiring suspension of the obligation to file for insolvency at the beginning of 2021. So far, the Government understands the need for investment in the economy through infrastructure and has already committed to some 50 billion euros in digital, healthcare and education, as well as attempting to futureproof the automotive and aviation industries5.
