The coronavirus pandemic is plunging the global economy and also the German economy into recession. The Federal Government expects gross domestic product to decline by 6.3% in 2020 (in price-adjusted terms). It predicts that pent-up demand will drive the economic recovery and lead to growth of 5.2% in 2021.
"The effects of the coronavirus pandemic is sending our economy into a recession after 10 years of growth. To help cushion the blow for companies and workers, we have launched a massive rescue package worth over one trillion euros. Our aim must be to preserve the substance of our economy and to guide our companies and workers through this crisis. With that said, we will have to cope with severe falls in economic output this year.
We are facing major challenges, both at an economic and a political level. I am aware of the massive burden that many of the measures taken are placing on businesses and citizens. I would therefore like to express my thanks to the business community and the general public for working together with us so constructively in this situation. We must now develop our protection strategy further in a prudent manner. Here it is crucial that we do not act too hastily, risking a second wave of infections. After all, only if we get the economy and social life going again in a step-by-step approach will the economy start to recover in the second half of the year."
The Federal Government's forecast takes into account that the far-reaching social distancing measures taken to the protect the health and lives of citizens were maintained from mid-March until the end of April. Thereafter, it is expected that these measures will be moderately relaxed in a step-by-step approach. According to the Federal Government, the sharpest drop in economic output will occur in the second quarter of this year. After this time, it foresees that the economy will gather steam again.
Below are further details of the Federal Government’s forecast:
- The fallout of the coronavirus pandemic is plunging the global economy into a severe recession, the extent of which exceeds that experienced as a result of the financial crisis of 2008/09. In line with the forecasts of international organisations (IMF, OECD), we expect global economic output to decline by an average of 2.8% in 2020 and to grow by 5.7% in 2021.
- We expect contractions of almost all expenditure components of GDP. Due to the negative growth of Germany’s export markets, German exports will decline by 11.6% in 2020 (2021: +7.6%).
- German imports will be affected by lower domestic demand and lower foreign demand for intermediate goods. Not least due to the extensive measures taken to support incomes and demand, imports will not decline as strongly as exports (-8.2% in 2020 and +6.5% in 2021).
- As a result, Germany's current account surplus in relation to nominal GDP is likely to decline in 2020 and remain noticeably below the 2019 level in 2021 as well.
- Investment in equipment is closely linked to Germany’s capital-intensive export industry. Given the pandemic-related recession in the manufacturing industry and the generally higher level of uncertainty at present, we expect to see a significant decline in investment in equipment in the first half of 2020. However, as the economy gradually picks up again, the volume of investment is expected to rise somewhat over the remaining forecast period.
- Demand for investments in the construction sector will be driven by the continuing low interest rates and also by increased liquidity, but at the same time it will suffer from falling incomes. What is more, shutdown measures (border closures) and increased uncertainty are also having an impact on the construction industry. We are therefore expecting investments in this sector to decline slightly this year (-1.0%) and to grow moderately in 2021 (+1.1%).
- Public spending will continue to support demand in the forecast period (2020: +3.7%, 2021: +1.3%). Public investments will also continue to increase strongly over the forecast period (2020: +3.9%, 2021: 2.3%).
- The labour market is coming under intense pressure. This year, employment is likely to decline by 370,000 persons, with hotels, restaurants, retail and business services (including the provision of temporary workers) expected to be particularly affected. Short-time work will rise to an unprecedented level in March and April and prevent many jobs from being lost. Unemployment is expected to rise to an annual average of 5.8%.
The key macroeconomic figures of the Federal Government’s Spring Projection are the basis for the tax estimate from May 12 to 14, 2020. They are to provide guidance in drawing up the public budgets of the Federal Government, the Federal states, municipalities and social security funds.
Key figures of the Federal Government’s 2020 Spring Projection
|Change in gross domestic product (price-adjusted)||2019||2020||2021|
|Change year-on-year in per cent|
|Gross domestic product ||0.6||-6.3||5.2|
|Private consumer spending ||1.6||-7.4||6.5|
|Gross fixed capital formation||2.6||-5.0||3.5|
|- including equipment||0.6||-15.1||8.7|
|- other installations||2.7||2.0||2.5|
|Change in stocks and net acquisition of valuables (stimulus)||-0.9||0.0||0.0|
|Net exports (stimulus) ||-0.4||-2.1||0.8|
|Private consumer spending ||1.3||0.3||1.4|
|Gross domestic product||2.2||1.7||1.5|
|Gainfully employed persons (national)||0.9||-0.8||0.4|
|For information purposes only:|
|Consumer Price Index||1.4||0.5||1.5|
|absolute values in million persons|
|Gainfully employed persons (national)||45.3||44.9||45.0|
|Unemployed persons (according to figures of the Federal Employment Agency)||2.27||2.62||2.46|
 In 2020 calendar-adjusted growth is -6.7% and the annual growth rate is -5.5%;
 Including non-profit organisations;
 Absolute change in the external contribution as a percentage of the GDP of the previous year (= contribution to the growth rate of GDP).