Germany has been plunged into a recession set to last until the middle of the year, the Economy Ministry said Wednesday, as the government held key talks on whether to end crippling curbs imposed to fight the coronavirus pandemic.
With schools and most shops closed, travel halted and millions now working from home, Europe’s biggest economy has been severely hit by the Covid-19 crisis.
As calls grow from industry for restrictions to public life to be gradually eased, Chancellor Angela Merkel will hold talks this afternoon with state premiers on whether to extend the curbs, which are currently due to run until April 19th.
“Falling global demand, interruption of supply chains, changes in consumers’ behaviour and uncertainty among investors” had all made themselves felt in the export giant, the Economy Ministry said.
The economic blow from the virus fell just as Germany was beginning to recover from a 2019 marked by the impact of trade wars and Brexit fears.
Industry in particular had seen rises in new orders and activity as 2020 got underway, the ministry noted.
But “given the massive demand and supply shock at home and abroad from the coronavirus pandemic, economic developments reversed course” for manufacturers, it said.
Meetings like Wednesday’s between Merkel’s cabinet and state governments aim at bringing measures into line across Germany’s 16 states, with some regional capitals backing toughness and others keen to gradually reopen society.
Chafing at the social distancing rules, some Germans have pointed to neighbouring Austria, where Chancellor Sebastian Kurz allowed many smaller businesses to reopen from Tuesday – but with conditions such as wearing masks and maintaining a safe distance from others.
“Even if the first protective measures can be loosened somewhat (after April), growth will remain very muted and only revive bit by bit,” the Economy Ministry forecast.
To cushion some of the blow, the government has passed a rescue package totalling €1.1 trillion ($1.2 trillion), ranging from guarantees for bank lending to business to a state fund that could buy up stakes in stricken companies if necessary.
The federal government also eased access to a scheme that tops up workers’ wages if their employer slashes hours, known as Kurzarbeit.
The BA federal labour agency said some 725,000 companies had applied for the assistance, adding that the number of workers affected will likely be “significantly” above the 1.4 million helped in the 2008-2009 financial crisis.
Berlin estimates that around 2.1 million workers will have to fall back on the support.
Meanwhile eyes are on a European Union heads of government video conference on April 23rd to lay the groundwork for recovery across the bloc.
Finance ministers from the eurozone single currency area agreed €500 billion of immediate support last week, but economists and politicians warn more will be needed, especially for the hardest-hit southern nations like Spain and Italy.
Predicting a contraction of up to 5.4 percent for Germany this year, some among Berlin’s council of economic advisers (SVR) warned in March of consequences if a European recovery programme falls short.
“It’s not much good if one country, hopefully Germany, comes through the crisis relatively well, but around us the crisis is not yet over, then we won’t be able to ramp up production,” SVR member Achim Trueger said at the time.