News Analysis: German economy recovering after COVID-19 slump
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E-mail Xinhua, October 31, 2020
by Lukas Heiwolt
BERLIN, Oct. 30 (Xinhua) -- Germany's gross domestic product (GDP) rose by 8.2 percent in the third quarter (Q3) compared to the previous quarter, the Federal Statistical Office (Destatis) said on Friday.
Although the German economy shrank by 4.3 percent in Q3 year-on-year, the quarterly increase was still notable in light of the "historic slump" in the second quarter caused by the COVID-19 pandemic, Destatis noted.
The recovery of the economy during the summer was mainly driven by consumer spending, investments in machinery and equipment as well as a "sharp increase in exports," according to Destatis.
EXPORTS SUPPORT INDUSTRY
Following losses of more than a billion euros (1.16 billion U.S. dollars) in the first half of the year, Germany's largest carmaker Volkswagen saw growing sales again in Europe and China and announced earnings before tax of around 2.4 billion euros by the end of Q3.
Although Volkswagen's global sales during the first three quarters of 2020 were still down 18.7 percent year-on-year, deliveries in Q3 reached pre-crisis levels again. According to Volkswagen, its largest single market, China, has been a "key driver" of market recovery.
German plastics manufacturer Covestro also recorded a strong increase in net income in Q3 and posted a year-on-year growth of almost 22 percent as the company's measures in response to COVID-19 were now paying off.
Just like with Volkswagen, China also played a major role in the recovery in Covestro's sales. "China is the only relevant, large automotive market that has not only proven to be robust in recent weeks and months, but also showed significant growth over the previous year," Markus Steilemann, chief executive officer (CEO) of Covestro, told Xinhua recently.
STATE AID
Like most European countries, Germany is currently hit by the second wave of the pandemic. On Wednesday, German Chancellor Angela Merkel and the minister presidents of the country's federal states agreed on tougher contact restrictions and a limited lockdown during the month of November.
In order to support companies whose operations were closed due to the upcoming lockdown, the government decided to provide additional economic aid to the tune of 10 billion euros. Depending on their size, the affected companies receive up to 75 percent of lost revenues compared to pre-crisis levels.
As part of the major COVID-19 stimulus package worth 130 billion euros that was unveiled in June, the government has already introduced quick loans for struggling companies via the state-owned development bank KfW and suspended the obligation to file for insolvency.
However, there is a risk that recovery supported by state aid is not sustainable. According to an expert survey published by the Munich-based ifo Institute for Economic Research last week, an overwhelming majority of economists fear that the suspension of the insolvency rules creates "zombie companies" -- businesses that are economically unviable yet still operating.
Almost all economists surveyed by ifo expect the number of business insolvencies in Germany to increase again as soon as companies are required to file for insolvency again when the economic policy measures come to an end.
FULL-YEAR OUTLOOK
On Friday, Germany's Minister for Economic Affairs and Energy Peter Altmaier stressed that the economic downturn was "less drastic than initially feared" because the country had acted "jointly and decisively during the first wave of the pandemic."
Despite the renewed increase in new COVID-19 infections, the catching up process of the German economy that was achieved in Q3 would continue at a very slow pace in the coming winter months, according to Altmaier's ministry.
For the full year 2020, the government projected a price-adjusted decline in GDP of 5.5 percent before growing again by 4.4 percent in 2021. However, the ministry warned that the forecast depends strongly on how the infection spreads. (1 euro = 1.16 U.S. dollars) Enditem
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