German Economy Contracted 5.0% in 2020 as Pandemic Takes Toll on Activity -- Update

BY Dow Jones & Company, Inc. | ECONOMIC | 01/14/21 05:43 AM EST

--Germany's gross domestic product fell 5.0% in 2020 due to the coronavirus pandemic

--Germany posted its first budget deficit since 2011 and the second-highest since German reunification

--Fourth quarter GDP data is due on Jan. 29

By Maria Martinez

The German economy posted the second-worst performance since the 1950s, after the 5.7% gross domestic product contraction in 2009 due to the financial crisis.

Germany's GDP fell by an adjusted 5.0% in 2020, after 0.6% growth in 2019 and 1.3% in 2018, according to a preliminary estimate by German statistics office Destatis released on Thursday. This was slightly above the 5.1% contraction forecast by economists polled by The Wall Street Journal.

"After a ten-year growth period, the German economy suffered a deep recession in 2020--the year of the corona," Destatis said.

In calendar-adjusted terms, GDP declined by 5.3% in 2020 as the number of working days was higher than in 2019. Economists polled by the Journal had forecast a 5.4% contraction.

Almost all economic sectors were affected by the coronavirus, with both industry and services suffering steep declines, Destatis said. The only sector that sustained its position during the pandemic was construction, which saw output increase by 1.4% on year.

Output in the industrial sector--which accounts for over one-quarter of the total economy--declined by 9.7%. Industry was affected by the consequences of the coronavirus, especially in the first half, due to temporary interruptions in global supply chains, Destatis said. The economic slump was also particularly strong in the service sector, which had the worst declines ever recorded, Destatis said.

In contrast to the financial crisis--when the economy was supported by all components of consumption expenditure-- household consumption last year fell a price-adjusted 6.0% on year, which was an unprecedented decrease, Destatis said. Gross capital formation recorded a price-adjusted decline of 3.5%--the largest fall since the 2008-09 financial crisis.

On the other hand, government expenditure rose a price-adjusted 3.4% and had a stabilizing effect. The general government budget recorded a deficit of 158.2 billion euros ($192.4 billion) in 2020, according to provisional calculations. It was the first deficit since 2011 and the second-highest deficit since German reunification, the statistics office said.

Exports and imports decreased for the first time since 2009. Exports fell by a price-adjusted 9.9% and imports by 8.6% . The decline was particularly large for imports of services due to the high weight of tourism, for which a sharp fall was recorded.

According to first calculations, 44.8 million people were employed in Germany in 2020, 477,000 fewer than in 2019, Destatis said.

The statistics office plans to release preliminary data for the fourth quarter on Jan. 29.

Write to Maria Martinez at maria.martinez@wsj.com


  (END) Dow Jones Newswires
  01-14-21 0543ET
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