One of the issues in economics is that we sometimes do not know what has just happened let alone where we are going. It was once explained to me as like driving a car with the front and side windows blacked out. Well maybe Germany has on this occasion provided a chink of light from one of the rear side windows.
WIESBADEN – According to first calculations of the Federal Statistical Office (Destatis), the price adjusted gross domestic product (GDP) was 5.0% lower in 2020 than in the previous year. After a ten-year growth period, the German economy suffered a deep recession in 2020, the year of the corona, a situation similar to that of the 2008-2009 financial and economic crisis. However, the economic downturn on the whole was less serious in 2020 than in 2009 (-5.7%), according to provisional calculations.
We can look at this in several ways of which the first is that this is likely to be a relatively good performance even though care is needed as this is an average for 2020 rather than where the economy is now. Next comes the issue of whether this is an ongoing depression including the credit crunch? In Germany’s case the answer is no as it is still above the previous peak in output terms. It has been a weak period overall but there was some progress most of it in the initial rebound of 4% in both 2010 and 11. As to the comparison with 2009 the numbers get a lot tighter in calendar adjusted terms as 2009 was -5.6% as opposed to the number below.
In calendar adjusted terms, the GDP declined by 5.3% in 2020, as the number of working days was higher than in 2019.
Breaking it down
I doubt many of you will be surprised to learn which was the worst affected area.
In industry (excluding construction), which accounts for just over one quarter of the total economy, the price adjusted economic performance declined by 9.7% on 2019, in manufacturing even by 10.4%. Industry was affected by the consequences of the corona pandemic especially in the first half of 2020, for instance, due to temporary interruptions in the global supply chains.
That of course came on the back of a 2019 which was influenced by the “trade war”.
The services sector was also hard hit.
The economic slump was particularly strong in the service sector where decreases were partly as severe as never before. Examples include trade, transport, accommodation and food services where the price adjusted economic performance declined by 6.3% compared with 2019.
Although as we have seen in so many places there were large shifts within the services sector.
However, opposite trends were also recorded: online trade increased markedly, while permanent retail trade in part declined substantially. The tight restrictions in accommodation, restaurant and similar services led to an outstanding decline in accommodation and food services.
Maybe they have similar problems to the UK in measuring construction as I am unsure how it could have risen but the official number is below.
A sector that could sustain its position in the crisis was construction: price adjusted gross value added even increased by 1.4% year on year.
You will not be surprised to read that private consumption headed south.
In contrast to the financial and economic crisis, when the economy was supported by all components of consumption expenditure, household final consumption expenditure in 2020 fell a price adjusted 6.0% year on year, which was an unprecedented decrease.
Nor that government spending boosted things.
Government final consumption expenditure saw a price adjusted 3.4% increase and had a stabilising effect even in the corona pandemic. This was, among other things, based on the acquisition of protective equipment and hospital services.
You may note a quite different treatment to the UK official statistics as Germany measures a much higher input rather than peering into theoretical declines in output in health (and education).
This area highlights one of the problems with Gross Domestic Product numbers as GDP falls to allow for the fact that there are losers on both sides of trade.
The corona pandemic also had a massive impact on foreign trade. Exports and imports of goods and services in 2020 decreased for the first time since 2009, that is, exports by a price adjusted 9.9% and imports by 8.6%. The decline was particularly large for imports of services; this was mainly due to the high proportion of tourism, for which a sharp fall was recorded.
Whilst exporters lose 9.9% and importers 8.6% the GDP numbers only show the subtraction which is calculated as a 1.1% fall. There is another twist as in terms of the nominal numbers the statisticians then found some imported inflation to reduce the import decline to below the exports number. I wonder where that was as we are do often told there is no inflation and the Euro was strong overall in 2020?
There are several ways of looking at this. Even the favourable one shows us this.
On an annual average in 2020, the economic performance was achieved by 44.8 million persons in employment whose place of employment was in Germany. That was a decrease of 477,000, or 1.1%, on 2019. Due to the corona pandemic, the upward trend in employment ended, which had lasted for over 14 years
Fair play to them for pointing out an inequality that has developed.
This affected especially marginally employed people and self-employed, whereas the number of employees subject to social insurance remained stable.
Also the sentence below is doing a lot of heavy-lifting.
Dismissals seem to have been avoided especially by the extended regulations regarding short-time work.
This has also been added to by the furlough scheme in Germany.
Germany`s «Kurzarbeit» Program spent EUR22.1bn last year subsidizing payroll for companies working at reduced levels ( @acenaxx)
Some 1.95 million were still being supported in the final quarter of the year which provides quite an appendix to the employment numbers we looked at above.
You could argue that Germany is finally applying some logic. As you can see their statisticians have got quite excited by it.
General government budgets recorded a financial deficit (net borrowing) of 158.2 billion euros at the end of 2020, according to provisional calculations. It was the first deficit since 2011 and the second highest deficit since German reunification and was exceeded only by the record deficit in 1995 when the debt of the Treuhand agency were integrated in the general government budget.
The reason I mention the logic point is that Germany is being paid to borrow, so why not do some? For most of 2020 ( from March) that applied to even the 30-year maturity which fell to nearly -0.5% in the March pandemic panic. There is an irony in Germany’s safe haven status as it moved away from one definition of a safe haven but then that was 2020 in a nutshell.
In terms of ratios we are told this.
Measured as a percentage of nominal GDP, this was a 4.8% deficit ratio of general government for 2020.
In relative terms this is low but does represent quite a shift on the previous surplus policy.
It is interesting that Germany has provided us with an update including the final quarter over a fortnight before it considers sensible to produce them. However as things stand the picture is in the circumstances good. As to the future there are two perspectives and let us start with the business survey or PMI.
Though down on its level between July and
October, the Germany Composite Output Index ticked up from November’s five-month low of 51.7 to 52.0.
If Germany’s Q4 GDP was indeed flat as seems likely from today’s number that has already not gone so well for the PMI. Now there are the lockdowns which seem set to last until the spring and issues with the supply of vaccines.
Angela Merkel admits Germany faces wait for Covid jabs … Germany is facing a Covid-19 vaccine shortage and may not be able to secure sufficient stocks until July, Angela Merkel privately told her MPs ( @TradingFloorAudio)
On that basis expectations that Germany will be back to pre pandemic levels at the end of this year look very optimistic.