In the corona pandemic, Germany is experiencing a very special kind of economic tale. Factories, shops and schools are closed for weeks, and travel is severely restricted – and yet the growth losses are limited.
The German gross domestic product (GDP) has shrunk by five percent in 2020 as a whole, as the Federal Statistical Office has now announced. But despite the economic emergency that continues to this day, the decline in GDP is not even as great as it was during the financial crisis in 2009. At that time, a good decade ago, economic output collapsed by 5.7 percent.
The surprising thing: in the fourth quarter, the German economy could not have contracted any further despite the lockdown in the middle of the Christmas business. Official data are not yet available, but the figures for the year as a whole suggest stagnation in the last three months of 2020.
Something else fits the picture of the economic fairy tale: According to the latest estimates, the financial assets of Germans climbed above the seven trillion euros mark at the end of 2020: Statistically, German citizens are as rich as never before. Also thanks to the stock exchanges, which are trading at record highs.
Even in comparison to other countries in the euro zone, the economic development in this country looks like a fairytale. In France and Italy, gross domestic product is likely to have slumped by around nine percent, and in Spain by almost twelve percent. The extent of the slump is reminiscent of the beginning of the global economic crisis.
“It was actually a year of disaster, but based on the fears that we had in the meantime, one could say that we got off lightly,” says Uwe Burkert chief economist at LBBW. He finds the robust development in the final quarter particularly remarkable. “Since we have had a lockdown again since November, this result must also be seen as a positive surprise.”
The pandemic left clear traces in almost all economic sectors: production was restricted in both the service sectors and in the manufacturing sector. Unlike during the financial and economic crisis, when overall consumption supported the economy, private consumer spending declined by six percent last year compared to the previous year – more sharply than ever before.
Exports and imports of goods and services fell in 2020 for the first time since 2009, the authority said. Adjusted for price, exports shrank by 9.9 percent and imports by 8.6 percent.
Part of the explanation for Germany‘s relatively mild performance is an exceptionally generous state. Under the banner of his “boom”, Finance Minister Olaf Scholz (SPD) made around 270 billion euros in economic aid last year. That corresponds to more than eight percent of German economic output.
The programs are largely financed on credit, which is reflected in historically high new borrowing. In 2020, the federal, state, local and social security organizations together received 158.2 billion euros less than they spent. The sum corresponds to a deficit of 4.8 percent of the gross domestic product. Up until the Virus Kirse, a balanced state budget was the priority in Germany; for eight years the German state managed without new debt.
During the financial crisis, budget deficits were three to four percent. A debt ratio like 2020 was last in the 1990s, when reunification had to be financed.
The historically high level of new borrowing would hardly have been possible without the support of the European Central Bank (ECB), which with its bond purchase program ensured that the states could easily obtain new money that they could pass on to companies, employees and consumers.
But it wasn’t just the high debts that made the picture beautiful. Germany‘s economic structure also contributed to the fact that the great economic catastrophe did not occur. In contrast to countries like Spain or Italy, Germany does not depend so heavily on services, which have suffered and are still suffering during the crisis. The industry-heavy German economy is completely different. Their production shows a V-formation. This is also evident in exports that are picking up again.
“German industry has recovered very quickly from the lows,” says Michael Holstein, chief economist at DZ Bank. Other large European economies would not have had the advantage of strong sales markets such as China. Despite the pandemic, the Middle Kingdom is likely to have managed to expand economically in 2020.
According to experts, Germany could switch back to growth mode from spring onwards. Andrew Kenningham from the analysis company Capital Economics expects that German economic performance will have returned to the pre-Corona level in the fourth quarter.
One area that was able to assert itself in the crisis in Germany was the construction industry: the added value even increased by 1.4 percent compared to the previous year. This is related to the price boom on the housing market, which continued in 2020 despite the crisis. Economists also see the price increases as a result of the flood of money and speak of asset price inflation. With central banks loosening their monetary policy further during the pandemic, the question of rising prices is all the more important. The last chapter of the economic tale has not yet been written.