The First Part Of German GDP’s Drama In Detail

German business expectations

Martin Moryson (DWS ) | The data published yesterday by the Federal Statistical Office confirms the 2.2% decline in German economic output in the first quarter. This had already been calculated in a previous estimate (all figures compared with the previous quarter). Combined with the last negative growth quarter of 2019, Germany is now officially in recession. However, the first quarter is only the beginning. After all, only two weeks of the quarter were in confinement. The real drama will only become evident in the figures for the second quarter. Here we expect a 10 percent decline.

The reserve purchases at the end of March were not enough to push private consumption into positive territory: private consumer spending was down 3.2%. This is mainly due to “distress savings.” The savings rate jumped from 9.7 per cent to 16.7 per cent. The consumer has switched to crisis mode. This is also reflected in the accumulation of inventories.

Even government consumption (up 0.2%) was unable to save the consumer sector.

Not surprisingly, investment in machinery and equipment has fallen dramatically (down 6.9%). The only ray of hope was the construction sector, which performed surprisingly well with an increase of 4.1%. Based on anecdotal evidence, it can be assumed that it even survived relatively well in April, the real crisis month.

The fact that the rest of the world was also in crisis mode can be clearly seen in exports. They fell by 3.1%. Foreign trade shaved a total of 0.8 percentage points off growth.

However, there was a positive development: gross wages and salaries increased sharply by 2.5% compared to the same quarter a year earlier. The significant increase in part-time workers’ benefits gives reason to hope that income losses in large sections of the population will not be as drastic as in some other EU countries or the US. The other side of the coin is that business and property income dropped by 5.1% compared to the previous year.