The corona crisis plunged the German economy into one of the worst recessions of the postwar period and tore deep holes in the state budget. Gross domestic product (GDP) collapsed by 5.0 percent last year compared to the previous year, as announced by the Federal Statistical Office on Thursday based on an initial estimate. Economic output fell more sharply only during the global financial crisis in 2009, when GDP fell by 5.7 percent. According to statisticians, GDP will stagnate in the last quarter of 2020, which was marked by the second block, compared with the previous quarter.
For the first time since 2011, Germany has run a budget deficit for the whole year. According to the Wiesbaden authority, the federal government, states, municipalities and social security funds spent 158.2 billion euros more than they received last year. In relation to total economic production, the deficit was 4.8 percent. This was the second highest deficit since the reunification of Germany, surpassed only by a record deficit in 1995, when the trustee’s debts were taken over into the state budget.
State revenue fell during the Corona crisis. Tax revenues fell sharply by 8.0 percent, in part because value-added tax was reduced for six months from July 1 to stimulate private consumption. At the same time, government spending has risen, due in part to billions in aid packages.
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In March and April 2020, parts of the German economy actually came to a halt as a result of the pandemic. A similar situation was in many other large economies, borders were temporarily closed, torn supply chains. Although the recovery began in the summer, new restrictions on economic and social life took place in the autumn, given the growing number of infections. However, the borders remained open.
For the whole year, after price adjustments, exports (minus 9.9 percent) and imports of goods and services (minus 8.6 percent) fell. Private consumer spending fell by 6.0 percent, more sharply than ever before. Corporate investment in equipment such as machinery also declined. Only government consumer spending and construction increased compared to the previous year, preventing an even stronger economic downturn.
Rise in production
Many economists predict a strong return for Europe’s largest economy this year – despite a blockage that was originally extended until the end of January. The rise in manufacturing is still intact, and in terms of foreign trade, there is a momentum of growth from demand from China and the United States, argued Lars Feld, head of the macroeconomic advisory board.
Most economists now expect the German economy to return to pre-Corona crisis levels at the turn of 2021/2022 – assuming that by then so many people had been vaccinated against the corona virus that economic life would return to normal.
Germany is not facing problems with Brussels due to the deficit. Due to the Corona crisis, EU countries have suspended the rules of the Stability and Growth Pact for the first time, according to which the budget deficit must not exceed three percent and the total debt must not exceed 60 percent of gross domestic product. (DPA)