Is Germany in recession? Well, to work that out we need to answer some other questions:
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first, what is a recession?
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second, what’s the state of the German economy? and
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third, how does the German economy compare to those of other countries?
What is a recession?
Different groups have different definitions for a recession. Germany is part of the EU, and the EU defines a recession as two or more consecutive quarters (i.e. six months) of contraction in the national gross domestic product (GDP). GDP is one of the most common measures of a country’s economic health. It’s the total monetary value of the manufactured goods and services produced in a country in a particular time period.
Many economists and the International Monetary Fund (IMF), on the other hand, say a recession is any period of reduced economic activity.
For Germany to be in a recession under the EU definition, it would need to have had contraction in GDP from October 2019 to March 2020. For economists, Germany would just have needed a period of reduced economic activity.
So, let’s break that down.
What’s the current state of the German economy?
According to the IMF, Germany has the largest national economy in the EU, and the fourth largest in the world. Between 2005 and 2019, unemployment dropped fairly steadily from 11.17% to 3.2%.
Based on GDP, the German economy had been growing for several years, but in the second half of 2018 it slowed down. According to Destatis, the website of the German Federal Statistical Office, in 2019 German GDP:
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increased by 0.5% in the first quarter;
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decreased by 0.2% in the second quarter;
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increased by 0.2% in the third quarter; and
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decreased by 0.1% in the final quarter.
Over the whole year, the annual growth rate was 0.6%, which was the worst result since 2013. The figures for the first quarter of 2020 came out on 15 May, and they showed a significant decline of 2.2%. The German statistics office will update the figures on 25 May, as the current figures are subject to extreme uncertainty. This is unlikely to change the outcome: Germany is in a recession.
Peter Altmaier, the German minister for the economy, recently warned the country to expect the worst recession since the country was founded in 1949. He expects German GDP to decrease by 6.3% in 2020.
How does Germany’s economy compare with those of EU countries?
According to Eurostat, the EU statistical office, Eurozone GDP decreased 3.8% in the first three months of 2020. That’s the sharpest decline since at least 1995.
In the last quarter of 2019, Italy, France and Spain all saw small decreases in GDP. When covid lockdowns in the first quarter of 2020 led to sharp drops in GDP, these countries officially entered a recession.
Unlike many other EU countries, Germany has a budget surplus. While the recession was inevitable, the surplus may help to cushion the blow – it will enable Germany to support its people and businesses.
How does Germany’s economy compare with the UK’s?
Germany’s economy is mostly dependent on exporting products, while around 80% of UK exports are services, particularly financial services.
The change in the UK’s GDP was similar to Germany’s for the first three quarters of 2019, but GDP rose in the final quarter. UK GDP:
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increased by 0.7% in the first quarter;
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decreased by 0.2% in the second quarter;
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increased by 0.4% in the third quarter; and
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increased by 0.2% in the final quarter.
On average, Germany has a slightly higher GDP per capita than the UK, but considerably lower debt as a percentage of GDP (Germany had 59.8% vs the UK at 85.4% in 2019). This puts Germany in a slightly better position to support its people and businesses and ease the impact of a recession.
So, is Germany in recession?
By both the EU definition and that of most economists, yes, Germany is in a recession, along with the UK, Europe and a good chunk of the world.
