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German economy collapses by historic proportions in second quarter

German gross domestic product (GDP) collapsed by 10.1 per cent in the second quarter as the coronavirus pandemic unleashed chaos on Europe's largest economy, the Federal Statistical Office (Destatis) said on Thursday.

Berlin, 30 July 2020 (dpa/MIA) – German gross domestic product (GDP) collapsed by 10.1 per cent in the second quarter as the coronavirus pandemic unleashed chaos on Europe’s largest economy, the Federal Statistical Office (Destatis) said on Thursday.

It was the sharpest quarterly fall since records began in 1970, the office said, citing preliminary figures.

By comparison, the German economy contracted by 4.7 per cent at the height of the financial crash in early 2009.

Compared to the second quarter of 2019, GDP fell by 11.7 per cent.

The German economy already shrank by 2.2 per cent in the first quarter of 2020 – before the brunt of the lockdown-type measures introduced in mid-March was felt.

Sweeping restrictions on public life, closed borders and forced production stoppages dealt near-catastrophic blows to a number of key industries in Germany in the months that followed.

Destatis noted that both exports and imports of goods and services plummeted in the second quarter as demand fell worldwide, while private household spending and investments in machinery and equipment also took a severe hit.

Meanwhile, the German government upped its spending in response to the crisis.

Economists expect that the economy is set to recover in the latter half of the year, provided that Germany can prevent a second wave of infections.

The restrictions put in place to stem the spread of the virus have been gradually eased or lifted across the country since May.

The German Institute for Economic Research (DIW) said that there were signs “clearly pointing to economic recovery,” while noting that it would take two years for the economy to return to pre-crisis levels.

Friedrich Heinemann, head of research at the Leibniz Centre for European Economic Research (ZEW), said the decline was historic, but found “no cause for panic.”

“The numbers … confirmed what we already knew. The federal republic is currently undergoing by far the deepest recession in its history,” he said, but praised the government for providing stimulus to bolster the economy’s defences and said the crisis would speed up the transition to a digital economy.

A 130-billion-euro package announced by the government last month includes a reduction in value-added tax intended to spur consumer spending as well as support for families and businesses.

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