Germany Sinks into Recession

The economic fallout of the Coronavirus pandemic has started to show its colours. Germany, Europe’s biggest economy, has contracted in the first quarter and analysts fear that the worst is yet to come. According to Germany’s Federal Statistic Office, the German economy reported a 2.2% drop in Q-o-Q output. This 2.2% drop in Q-o-Q output is the widest since the financial crisis and the second biggest since German reunification in 1990. The current decline along with the data for the last quarter of 2019 revised down, has officially pushed Germany into a recession.  A recession is generally defined as two consecutive quarters of negative economic growth.

The data released by the statistic office is indicative of the impact of two-week long lockdown. This was followed by three more weeks of lockdown and gradual lifting of lockdown measures. Based on the extent of the lockdown and the exit strategy, economists do not see the second quarter doing well. It is expected that any pickup in economic activity will be slow and dependent on how fast the wider Eurozone recovers.

It is being said that while the COVID-19 pandemic did not impact activity in January and February, but the hit in March was more than enough to ruin the quarter as a whole. Germany is not alone in the Eurozone. France and Italy have also slid into recession. France’s economy suffered the steepest decline, shrinking by 5.8% after a decline of 0.1% in the previous quarter. Italy contracted by 4.7% on the heels of a 0.3% fall in the last three months of 2019. On the other side of the globe, Japan has fallen into recession for the first time since 2015 as the financial toll of the Coronavirus continues to escalate.

While nations are working on exit strategies to get their respective economies back on track, they are worried consumers and firms remaining highly cautious and some firms choosing not to reopen. The shape of the recovery will also to a large extent depend on the longevity of the lingering effects.

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