Historic slump in the German economy

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The corona pandemic causes the most severe economic crash in reunified Germany. From April to June the economy shrank by 10.1 percent compared to the first three months of 2020. However, the situation is now improving again. The number of unemployed rose by only 57,000 to 2.91 million in July, which was not due to Corona, but is common in summer.

The economic crash in the second quarter triggered a collapse in exports and health measures that contained the pandemic. Its extent must be considered historical. For comparison: Even in the worst three months of the financial crisis in 2009, the economy shrank by less than five percent. However, the quarterly figures have turned backwards. Companies have been recovering since May.

Confidence for the third quarter

The Ifo index rose in July for the third month in a row and showed an upswing for the first time since 2019. The industry managers surveyed see their situation more positively. A majority of service providers even describe the situation as good rather than bad. Construction companies no longer expect business to collapse as in June, which is also due to the stimulus package from the federal government.

The German Institute for Economic Research (DIW) expects growth of three percent in the third quarter. “The signs are clearly pointing to recovery,” said DIW economic chief Claus Michelsen. “But despite strong growth, it will probably be two years before the historic slump in spring is made up for.”

A second wave of infection in Germany with new economic restrictions that could trigger a bankruptcy wave is now seen as the greatest risk. Exports are also threatened by the fact that the pandemic is raging heavily in countries like the USA, to which German companies usually sell a lot of goods.

No new job losses due to the pandemic

The number of unemployed in July was more than 600,000 higher than a year earlier. The bottom line is that the pandemic is no longer causing any new job losses. Unemployment rose again in July, but it always happens in summer because certain jobs are cut. Seasonally adjusted, the number of unemployed even fell by 18,000.

“The labor market is still under pressure due to the corona pandemic, but the massive use of short-time work has prevented greater increases in unemployment,” said Daniel Terzenbach, board member of the Federal Employment Agency (BA). According to initial estimates, 6.7 million employees received short-time work benefits in May. Applications from companies are falling drastically: in July, short-time working was only reported for 200,000 new employees.

There are big differences. While 90 percent of hotels and 68 percent of the automotive industry worked short-time in July, according to the Ifo Institute, construction and finance industries only had about ten percent.

The pandemic has delayed apprenticeships by about two months until autumn. In July, 180,000 applicants were still on the lookout. At the same time, there was an even slightly higher number of vacant training positions. It is striking that the metal industry, hairdressers and restaurateurs offer significantly fewer jobs. This is also the case for IT and commercial professions.

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The consequences of the corona pandemic have plunged the German economy into a severe crisis. Automotive suppliers and their employees are also struggling.

The reunified Germany experienced the worst economic crash so far with 10.1 percent. The situation on the labor market is at least relatively stable and the prospects for the coming months are much better.

From

Alexander Hagelüken

The corona pandemic causes the most severe economic crash in reunified Germany. From April to June the economy shrank by 10.1 percent compared to the first three months of 2020. However, the situation is now improving again. The number of unemployed rose by only 57,000 to 2.91 million in July, which was not due to Corona, but is common in summer.

The economic crash in the second quarter triggered a collapse in exports and health measures that contained the pandemic. Its extent must be considered historical. For comparison: Even in the worst three months of the financial crisis in 2009, the economy shrank by less than five percent. However, the quarterly figures have turned backwards. Companies have been recovering since May.

The Ifo index rose in July for the third month in a row and showed an upswing for the first time since 2019. The industry managers surveyed see their situation more positively. A majority of service providers even describe the situation as good rather than bad. Construction companies no longer expect business to collapse as in June, which is also due to the stimulus package from the federal government.

The German Institute for Economic Research (DIW) expects growth of three percent in the third quarter. “The signs are clearly pointing to recovery,” said DIW economic chief Claus Michelsen. “But despite strong growth, it will probably be two years before the historic slump in spring is made up for.”

A second wave of infection in Germany with new economic restrictions that could trigger a bankruptcy wave is now seen as the greatest risk. Exports are also threatened by the fact that the pandemic is raging heavily in countries like the USA, to which German companies usually sell a lot of goods.

The number of unemployed in July was more than 600,000 higher than a year earlier. The bottom line is that the pandemic is no longer causing any new job losses. Unemployment rose again in July, but it always happens in summer because certain jobs are cut. Seasonally adjusted, the number of unemployed even fell by 18,000.

“The labor market is still under pressure due to the corona pandemic, but the massive use of short-time work has prevented greater increases in unemployment,” said Daniel Terzenbach, board member of the Federal Employment Agency (BA). According to initial estimates, 6.7 million employees received short-time work benefits in May. Applications from companies are falling drastically: in July, short-time working was only reported for 200,000 new employees.

There are big differences. While 90 percent of hotels and 68 percent of the automotive industry worked short-time in July, according to the Ifo Institute, construction and finance industries only had about ten percent.

The pandemic has delayed apprenticeships by about two months until autumn. In July, 180,000 applicants were still on the lookout. At the same time, there was an even slightly higher number of vacant training positions. It is striking that the metal industry, hairdressers and restaurateurs offer significantly fewer jobs. This is also the case for IT and commercial professions.

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