Economy

Germany falls into recession amid pandemic shutdown

Germany falls into recession amid pandemic shutdown”

The Euro is edging higher on Friday despite the release of a report that showed the Euro Zone economy posted its deepest contraction on record in the first three months of the year against the previous quarter.

The German economy's decline reflects its biggest quarterly drop since the global financial and economic crash of 2009 and the second-largest decrease since German unification.

The figures from the Federal Statistical Office offered a first glimpse of the damage caused by the coronavirus crisis to Europe's biggest economy, which the government is trying to limit with a raft of rescue programs.

Germany, along with just about every other economy on the planet, has been hit by the combination of official restrictions on movement and commercial activity, as well as by personal choices to avoid the risk of infection.

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Like nearly all European Union states, Germany did not go into lockdown to slow the spread of the virus until around mid-March, so the bulk of the impact of those curbs will only become apparent in second-quarter data as sectors like tourism, and bars and restaurants, remain shut. The UK's economy dropped 2% in the first quarter of the year. That revision put Germany into a technical recession, defined as two consecutive quarters of economic contraction. Germany itself started shutting down in mid-March.

The country started loosening lockdown restrictions on April 20. While factories weren't closed, companies largely stopped production in some areas - such as its large auto making sector - and supply chains were disrupted. Factory orders fell 15.6 per cent in March, and industrial production fell 9.2 per cent, while exports fell 11.8 per cent.

Recently, the United Kingdom posted a first-quarter contraction of 2.2%. "In the short term, some catch-up effects can be expected, but the economy's underlying growth momentum is likely to pick up only gradually in the coming months". France and Italy both fell into recession, with the French economy shrinking 5.8 percent, the most since the country's statistics agency began keeping the figures in 1949.

"The first quarter QoQ contraction of 3.8% is the sharpest on record", said Artur Baluszynski, head of research at Henderson Rowe.



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