Germany Expects Economy to Shrink More Than 5% on Virus Hit


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Germany faces a deeper recession than during the financial crisis, as the coronavirus pandemic shuts down large parts of Europe’s biggest economy.

The impact on 2020 growth from measures to contain the virus could be “as strong, or even stronger” than the 5% contraction caused by the sovereign-debt emergency in 2008 and 2009, Economy Minister Peter Altmaier said Thursday in Berlin. National output could shrink for some months in the first half by more than 8%, he added.

“That means that after 10 years of good economic growth we will again experience a recession this year,” said Altmaier. “It’s the first since 2009, and we want it to be a temporary one and that it’s quickly put behind us and the economy emerges stronger.”

In the face of the unprecedented challenges posed by the spread of the deadly disease, Chancellor Angela Merkel’s government was widely expected to slash its forecast from the pre-crisis prediction of 1.1% growth.

Germany’s efforts to limit the fallout are advancing, as aid applications pour in and officials seek a path to restart all-important auto production. Altmaier also underscored the government’s commitment to revive growth once the outbreak subsides.

Under a government program aimed to providing strapped businesses with financial liquidity, 2,500 companies have requested a total of 10.6 billion euros ($11.6 billion) in support, according to state development bank KfW.

“In such a situation, in which companies are really experiencing a massive collapse in sales, there is certainly a measure of panic in the air,” said Guenther Braeunig, head of the bank. He expects a “significant increase” in applications in the next few weeks.

Merkel’s government secured emergency spending powers to unleash a historic rescue package that totals more than 750 billion euros, including social benefits, loans and guarantees for businesses and funds to take stakes in stricken companies.

As aid starts to flow, Merkel — still in precautionary quarantine at home — turned her attention to the country’s critical auto sector, speaking with executives and industry heavyweights late Wednesday on how and when to restart factories. The meeting comes amid growing concern that some cash-strapped suppliers may not survive the pandemic’s fallout.

The country can ill afford a prolonged shutdown of its car industry, which employs more than 800,000 people and is a key indicator of industrial health in Europe’s largest economy. Volkswagen AG currently burns through 2 billion euros ($2.2 billion) per week as most of its sites sit idle.

As VW, Daimler AG and BMW AG halt production, the disruptions have ripple effects on the hundreds of companies that make components from screws to seat cushions. Many of these firms are small, family-owned entities that lack deep financial resources, putting them particularly at risk.

While Germany has set up a series of measures to aid companies, the concern is the support won’t reach many smaller, cash-strapped suppliers quickly enough to keep them afloat.

These firms are critical for the finely-tuned supply chain and widespread bankruptcies would be a disaster, Continental AG’s Chief Executive Officer Elmar Degenhart told reporters on Wednesday, after the auto-parts giant abandoned its earnings outlook over the coronavirus.

Despite the risks in the coming, Altmaier offered an optimistic outlook going forward, saying Germany could be in position for “decent growth” next year and that the government planned spending to get the economy back on track.

“We all want to be able to get things going again after the health crisis has passed,” he said. “For that, we will need more than the aid package we have put together. We need a fitness program, a growth program, and we will work toward that together in the government.”

(Updates with additional comments and context beginning in fifth paragraph)


The Indian Telegraph
Established in 2007, The Indian Telegraph is a multi award winning digital media company based in Australia.

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