Coronavirus: Germany braces for worst recession in post-war history

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
German economy minister Peter Altmaier: 'We are facing major challenges'. (Tobias Schwarz/AFP via Getty Images)

Germany is expecting its worst recession since the Second World War due to the global coronavirus pandemic.

Presenting the spring forecast for 2020 in Berlin on Wednesday, economy minister Peter Altmaier said the government expects gross domestic product (GDP) growth to shrink to minus 6.3% in 2020. In January, before the crisis hit, the estimate was for GDP growth of 1.1%

The government’s forecast is in line with the prediction from the Munich-based Ifo economic institute, which this week said it expects Europe’s largest economy to contract by 6.6% overall this year.

“We are facing major challenges,” Altmaier said at a press conference, noting that the country was facing its first recession after ten years of growth.

Germany’s export-dependent economy will take a big hit, with exports expected to drop by over 11% in 2020.

READ MORE: Coronavirus: Germany's transmission rate ticks back up to 1.0 as lockdown eases

Altmaier said an economic rebound is expected in 2021, with GDP growth of 5.2%, but it all hinges on how long this crisis continues and whether or not there will be a second wave of infections.

“Only if we lift economic and social restrictions step-by-step, and with a sense of proportion, can we begin a slow recovery in the second half of the year,” he said.

Altmaier said the job market was under extreme pressure and the number of people on part-time hours could rise to three million. Unemployment is expected to increase to 2.62 million by the end of the year, up from around 2.27 million in 2019.

Germany has begun easing commercial restrictions in the past week or so, with smaller businesses, car dealerships, playgrounds, and zoos able to open again. Some classes will be allowed to restart in schools from next week.

READ MORE: Coronavirus: Germany to extend travel ban to at least mid-June

However, chancellor Angela Merkel has warned that if people stop maintaining strict social restrictions — such as only going out in groups of maximum two people and maintaining social distancing of 1.5 metres in public — then the country could be hit with a second wave of coronavirus infections. Face masks are now compulsory on public transport and in shops across the whole country.