coronavirus has driven German economy into “severe recession”



The Bundesbank, Germany’s central bank, believes that the coronavirus pandemic and measures to curb it have precipitated the German economy into a “severe recession” and rules out a rapid recovery.

In its April monthly newsletter, released today, the Bundesbank says the pandemic has paralyzed some sectors of consumer services and, thus, economic activity largely since mid-March.

“To what extent will economic activity fall in the end, cannot be predicted at the moment because the duration of the recession will depend on when and to what extent the restrictions that have been applied to fight the pandemic are relaxed,” added the economists of the Bundesbank.

However, “a rapid economic recovery is unlikely,” according to the Bundesbank.

Some confinement relaxation measures have already been announced, but until a medical solution is found, “substantial restrictions” will need to be maintained, so a “rapid and strong economic recovery” seems unlikely.

The speed with which consumers and businesses normalize once the restrictions are relaxed will be decisive, not only for Germany, but for all countries that are closely connected to Germany, according to the report.

However, Bundesbank economists rule out that the downtrend in the economy in itself intensifies because social security systems, monetary stimuli from the ECB and fiscal support measures from the German government “oppose that scenario.”

The sectors most affected by the fall in turnover due to the closure of stores and shops, as well as other security measures are gastronomy, travel service providers, other leisure and cultural services, and the textile sector.

The fall in consumption in these sectors has reduced gross domestic product (GDP) in the second half of March by more than one percentage point in the first quarter of the year, according to calculations by the Bundesbank.

Similarly, applications for unemployment benefits have soared since mid-March, which in Germany are known as short-time work (Kurzarbeit) and will now be higher than in the 2009 crisis.

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