Germany’s GDP falls 5% in 2020, manufacturing down 10.4%

Author: Stefan Baumgarten

2021/01/14

LONDON (ICIS)--Germany’s gross domestic product (GDP) fell 5.0% in 2020 due to the coronavirus pandemic – putting an end to a 10-year growth period, the country’s federal statistics agency said on Thursday.

Despite the steep decline, the downturn was less severe than in 2009, amid the global financial and economic crisis, when the country’s GDP fell 5.7%.

Germany’s GDP

2009 2016 2017 2018 2019 2020
-5.7% 2.2% 2.6% 1.3% 0.6% -5.0%

Source: Statistisches Bundesamt, Wiesbaden

On a price- and calendar-adjusted basis, 2020 GDP was down 5.3% as the number of working days was higher in 2020 than in 2019.

In industry (excluding construction), which accounts for just over one quarter of the total economy, the price adjusted economic performance fell 9.7% from 2019, with manufacturing down 10.4%.

Industry was affected by the pandemic especially in the first half of 2020, due to temporary disruptions in global supply chains, the Statistisches Bundesamt said.

The economic slump was particularly strong in the services sector where decreases were “as severe as never before”, the agency said.

Examples include trade, transport, accommodation and food services.

However, online trade increased markedly.

Also, the construction sector defied the decline, with its price adjusted gross value added rising 1.4% from 2019.

DEMAND 
The impact of the pandemic was also marked on the demand side.

In contrast to the 2008-2009 financial and economic crisis, when the economy was supported by all components of consumption expenditure, household final consumption expenditure in 2020 fell a price adjusted 6.0% year on year, “which was an unprecedented decrease”, the agency said.

However, government final consumption expenditure saw a price adjusted 3.4% increase and had a stabilising effect amid the pandemic.

This was, among other things, due to massive purchases of personal protective equipment (PPE), as well as hospital services.

Gross fixed capital formation recorded a price adjusted decline of 3.5%, the largest decrease since the 2008-2009 crisis.

Contrary to this trend, gross fixed capital formation in construction was up 1.5%.

Gross fixed capital formation in machinery and equipment decreased a price adjusted 12.5% on the previous year.

Gross fixed capital formation in other fixed assets, which include in particular research and development, was down a price adjusted 1.1% according to the agency’s estimates.

FOREIGN TRADE
The pandemic also had a massive impact on foreign trade.

Exports and imports of goods and services in 2020 decreased for the first time since 2009, that is, exports by a price adjusted 9.9% and imports by 8.6%.

The decline was particularly large for imports of services, in particular tourism.

ANALYSTS' VIEW
Deutsche Bank said that so far Germany was mastering the pandemic better than other large eurozone countries.

However, with the new lockdowns to contain the pandemic’s second wave, and indications by key politicians that at least some of the measures could be extended until Easter, the outlook for the current Q1 “has become more clouded,” the bank said in a research note.

Deutsche forecasts Germany’s 2021 GDP growth at 4.5%.

Analysts at Oxford Economics said that the 2020 GDP decline was felt across all GDP subcomponents apart from government consumption, with a notable 6% fall in private consumption.

The current year should be “much brighter”, with Oxford Economics forecasting 3.8% growth.

However, the near-term outlook remained challenging given the severity of the pandemic's second wave.

Oxford expects Germany’s output to contract 0.5% quarter on quarter in Q1, before resuming growth from Q2 onwards.

Analysts at the Munich-based Ifo institute said that the 5.0% GDP decline implied a shortfall of around €200bn in Germany’s economic output last year, compared with the 1% growth that was forecast at the end of 2019.

Unlike in the spring of 2020, when the virus' first wave struck, Germany’s economic output was currently suffering “in just a few sectors of the economy,” said Timo Wollmershauser, head of forecasts at ifo.

Hotels and restaurants in particular, as well as service providers in arts, entertainment, and recreation.

By contrast, manufacturers and service providers serving the manufacturing sector have so far continued to recover largely unaffected by the virus and government infection control measures, he said.

For 2021, Ifo currently expects around 4.5% GDP growth.

Once the lockdown is eased, a rapid and strong recovery should then begin.

“If consumer behaviour also largely returns to normal by the summer, for example because the Covid-19 [coronavirus] vaccination campaign is well advanced, then production of goods and provision of services could return to pre-crisis levels as early as the second half of the year,” Wollmershauser said.

Front page picture: The European Central Bank offices in Frankfurt's financial district 
Source: Michael Probst/AP/Shutterstock

Focus article by Stefan Baumgarten

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