The German economy contracted 5% in 2020, the biggest setback since the financial crisis

The German economy shrank by 5% in 2020 due to the impact of the coronavirus pandemic, the Federal Office for Statistics announced on Thursday. The contraction of the German economy in 2020 is the second lowest recession in the country’s post-war history and only in 2009 did German GDP fall even more sharply, by 5.7%, as a result of the global financial crisis.

According to Destatis, the statistical office, 2020 also saw the first annual budget deficit since 2011. According to the Wiesbaden-based authority, the federal government, states, municipalities and social security funds spent € 158.2 billion more than in 2019. In relation to total economic production, the deficit was 4.8%. That was the second-highest deficit since German unification, exceeded only by the record deficit of 1995, when the Treuhand’s fiduciary debts were transferred to the state budget.

“After a 10-year period of growth, the German economy suffered a deep recession in 2020, the year of the coronavirus, a situation similar to that of the economic and financial crisis of 2008-2009. However, the recession as a whole was less severe in 2020 than in 2009, according to provisional calculations, ”says Destatis.

“The COVID-19 pandemic left clear traces in almost all sectors of the economy in 2020. Production fell, in some cases massively, both in the service sector and in manufacturing. In the manufacturing sector, excluding construction, which represents a good quarter, the price-adjusted economic output fell by 9.7% compared to 2019, and up to 10.4% in the manufacturing sector. The industry was particularly affected by the consequences of the pandemic in the first half of the year, including the temporary disruption of global supply chains, “added Destatis in a statement.

It wasn’t all. According to German analysts, the effects of the virus were also clearly visible in the demand sector. Unlike what happened during the financial and economic crisis, when general consumption supported the economy, private consumer spending in 2020 fell 6% year-on-year in price-adjusted terms, the largest decrease in history. On the other hand, government consumer spending had a stabilizing effect even during the 2020 crisis, with a price-adjusted increase of 3.4%, helped in part by the purchase of protective equipment and hospital services.

The coronavirus pandemic also had a massive impact on foreign trade. Exports and imports of goods and services fell in 2020 for the first time since 2009, with exports falling 9.9% in adjusted price terms and imports falling 8.6%.

The contraction in 2020 also had its negative consequences in the field of employment and ended 14 consecutive years of growth in employment in the country: in 2020 there were 1.1% fewer people with work (477,000 less than in 2019) .

Looking ahead to 2021, the Bundesbank, the German central bank, forecasts that the German economy will grow by 3%, and by 4.5% in 2022.