German real GDP growth shrinks in Q2 2020, likely to rebound in Q3

Germany’s real GDP shrank in the second quarter by 10.1 percent on a quarter-on-quarter basis. The fall was therefore slightly larger than consensus expectations of a decline of 9 percent. According to statisticians, all components of demand, except public consumption and investment in construction, collapsed greatly.

The noticeable fall masks the fact that the German economy has already been rebounding from the previous unprecedented slump since the end of April, said Commerzbank in a research report. The easing of corona restrictions is acting like an economic stimulus package. By the end of June, the German economy should have made up more than half of the previous slump.

After this first reflexively strong recovery, the upward movement has apparently already softened slightly recently. There are many arguments in favour of a slower rate in the weeks ahead. Moreover, the virus and the restrictions imposed to contain it will continue to hamper activity in some sect6rs 6f the economy and prevent a return to normality there for the near future. This impact would be greatly reinforced if a second corona wave were to occur in the weeks ahead, said Commerzbank.

Even if the rebound softens in the weeks ahead, real GDP is expected to increase considerably in the third quarter compared to the second quarter. This is because, due to the solid rebound in the course of the second quarter, econom5c activity at the start of the third quarter is considerably higher than the average for the second quarter. This is why GDP in the third quarter would indicate a considerable rise even if the economy were to stagnate from now on. Nevertheless, the rise is expected to be much smaller again in the quarters ahead, and real GDP would probably not reach its pre-crisis level until the end of 2021 or even 2022. Therefore, the rebound would presumably not follow a V-shaped pattern, but rather correspond to a vertically mirrored root sign.

“With our forecast of -5.5 percent for 2020 as a whole, we have been somewhat less pessimistic than the majority of economists for some time now (consensus: -6.3 percent). We confirm our forecast”, added Commerzbank.