Via Financial Times

The German economy has shrunk at the fastest pace since the financial crisis over a decade ago, as the lockdown imposed to combat the pandemic brought many activities to a standstill in Europe’s largest economy.

Germany’s gross domestic product shrank by 2.2 per cent between the last quarter of 2019 and the first three months of this year, slightly less than most economists had expected and better than many eurozone economies, the statistics agency said on Friday.

The drop in first-quarter growth came after German industrial production tumbled by a record 11.6 per cent year-on-year in March, when the lockdown started and forced factories to close and workers to stay at home. It is the biggest quarterly drop in German GDP since the first quarter of 2009, when it shrank 4.7 per cent in the wake of the financial crisis.

The news underlines how government restrictions to tackle the coronavirus crisis have caused output and demand to crash in Germany, even if the drop in output has been less dramatic than in many of its largest neighbours that imposed even stricter lockdowns.

The 19 countries in the eurozone suffered an overall 3.8 per cent contraction in the first quarter, preliminary data published last month showed. France’s economy did worse, shrinking 5.8 per cent. Spain contracted 5.2 per cent in the period and Italy’s GDP fell by 4.7 per cent.

Column chart of Change in GDP, quarter on quarter (%) showing Eurozone faces historic recession

While Germany’s regional governments have been steadily easing their lockdowns this month, economists believe it is set for a record recession in the second quarter. Deutsche Bank forecast the country’s economy would shrink by 14 per cent in the April-to-June period and even after rebounding slightly later on it would still end the year 9 per cent smaller.

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Berlin revealed on Thursday that the coronavirus crisis had blown a hole in the country’s public finances. It said this year’s tax take was set to fall by €81.5bn compared with 2019 — a 10 per cent decline — even as spending is ramped up with plans for €150bn of extra debt.