Coronavirus-hit German economy contracted by up to 25%: KfW

FILE PHOTO: The cyclist rides past the skyline with its banking district during sunset in Frankfurt, Germany, April 29, 2020, as the spread of the coronavirus disease (COVID-19) continues. Reuters

BERLIN (Reuters): German economic output probably declined by some 20-25% for several weeks due to the coronavirus outbreak, the KfW state development bank said on Tuesday, adding that activity likely reached its trough in April if no second wave comes.

Germany went into lockdown in March to contain coronavirus contagion, with many firms halting production and shops closing. Last week Chancellor Angela Merkel announced steps to ease restrictions but also launched an “emergency brake” mechanism to allow renewed restrictions in case infections pick up again.

“The coronavirus crisis hit Germany like lightning,” KfW chief economist Fritzi Koehler-Geib said.

He said a recovery was likely to start in the second half of the year but the economy would probably only reach its pre-crisis level in autumn 2021.

Ultimately, this will cost Germany 300 billion euros ($324.51 billion) in economic output – an amount similar to the entire gross domestic product of Denmark – KfW said. With the easing of many restrictions, the economy should at least partially normalise by the summer, KfW said, adding that would result in very strong growth in the third quarter. KfW said it expected the economy to shrink by 6% this year before expanding by 5% next year. But risks were mainly on the downside, it added, with a possible second infection wave the main danger.

Those are very similar to predictions made by the German government at the end of April for a contraction of 6.3% this year and an expansion of 5.2% next year.

Fears about getting infected and economic uncertainty mean people will hold back on purchases until rapid tests for the coronavirus are available and chains of infections can be traced, KfW said.

Last week a poll published by GfK market research group showed one third of Germans expect to splash less cash on durable goods in future and the same proportion sees their financial situation worsening over the next 12 months as the coronavirus crisis bites.