October 1, 2020

The German deficit stands at 3.2% in the second semester, while the GDP in the second quarter falls by 9.7%


Berlin

Updated:

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The mood among German business leaders has not waned. The business climate index of the prestigious Munich Ifo Institute records a rise to 92.6 points in August, after the 90.4 points registered in July. Companies rated the current situation as “significantly better” than in the previous month. Their expectations were also a bit more optimistic and they seem convinced that the German economy is on the way to recovery.

In the manufacturing industry, the business climate has improved significantly, yet many industrial companies still rate their economic situation as “bad.” The outlook for the next few months was once again more optimistic. The order books are filling up again. In the services sector, the business confidence index rose sharply. Service providers are significantly more satisfied with their current business situation and the outlook for the next six months also continued to improve.

But when it comes to retail, the upward trend in the business climate has flattened noticeably. Dealers are only slightly more satisfied with their current situation and expectations remain largely unchanged, relatively pessimistic, pending the German government start to pay in September 300 euros per child to families, a measure to promote consumption that could modify this data. In wholesale, the business climate even deteriorated in August. Finally, construction companies are once again more satisfied with their current situation, although their expectations remain pessimistic, very similar to those of the previous month.

The business confidence data remains underpinned at very positive levels, despite the evolution of the German gross domestic product, fundamentally because compared to the environment, GDP is not as bad a data as it may seem when viewed in isolation. Destatis has revised the contraction of the German economy in the second quarter, from the 10.1% fall that it announced with preliminary data on July 30 to a 9.7% cut. Despite the update, it is still the largest drop recorded in a quarterly measurement of German GDP since these statistics began to be published in 1970, but it is well below the GDP falls of countries in the European environment, such as France, with 13 , 8%, Italy 12.4% or Spain 18.5%.

Destatis highlights in its statement the “massive collapse of domestic and international demand” as the main cause of the drop in GDP. In the second quarter, private consumption yielded 10.9% compared to the first; investment in capital goods plummeted 19.6% and construction also fell, albeit more moderately, by 4.2%. On the contrary, and partially balancing the situation caused by the pandemic and the measures to contain it, public spending rose 1.5% between April and June compared to the previous quarter.

Foreign trade, one of the mainstays of the first European economy, also sank due to the coronavirus. In the second quarter, exports fell 20.3% compared to the first quarter, while imports contracted 16.0%. Now, the German government estimates that GDP will contract this year as a whole by 6.3%. The Bundesbank places that forecast at 7%.

With all this, the data that worries most in Germany is the deficit, which stand at 3.2% of GDP due to the spending measures that the German government has taken to counteract the paralyzing effect that the pandemic has left on the economy. The set of central, regional and local administrations, plus the social security fund, spent in the first half of 2020 some 51.6 billion euros more than those who entered. In comparison, in the first half of 2019 the German state had obtained a surplus of 46,500 million euros.

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