Germany Sees Output Shrinking 6.3% as Confidence Collapses

(Bloomberg) --

Germany expects the impact of the coronavirus to plunge the economy into its worst recession since the nation began its recovery in the aftermath of World War II, as confidence at companies and households plummets across Europe.

Gross domestic product is forecast to shrink by 6.3% in 2020, more than even during the financial crisis a decade ago, according to Economy Ministry projections published Wednesday. The low point of the recession -- the worst since at least 1950 -- is expected in the second quarter, before a gradual recovery and growth of 5.2% next year.

Economy Minister Peter Altmaier said the government’s “unprecedented” package of measures to mitigate the impact of the virus lockdown, worth “more than 1 trillion euros ($1.1 trillion),” will help limit the damage as far as possible.

“We are faced with great challenges, both economic and political,” Altmaier said in a prepared statement, while warning that lifting restrictions on public life too quickly could risk a resurgence of the disease. “Only if we restart economic and social life with moderation can we begin a gradual recovery already in the second half,” he said.

Altmaier spoke after survey data provided more evidence that the closing of businesses and loss of work across Europe has shattered confidence at companies and households and left the continent’s economy in a deep slump.

A separate release showed German inflation slowed to 0.8% in April, the lowest in more than three years, after a slump in oil weighed down energy costs.

The European Commission’s monthly sentiment index plunged by a record in April and is now near the lows recorded during the financial crisis more than a decade ago. Companies are worried about demand, employment expectations have dropped, and job concerns mean consumers are less likely to make major purchases.

The overall index, which goes back to 1985, dropped to 67 from 94.2 in March, just above the 2009 low of 65.5.

The report provides a snapshot of the damage the coronavirus-related restrictions are having on the economy. Governments are aware of the economic cost and are desperately formulating plans to reopen businesses before the damage becomes irreversible.

Some industries have taken a particular hit, such as airlines, hotels and restaurants. IAG SA said Wednesday it will slash the work force at its flagship British Airways by almost 30% to shrink the airline group for a downturn that could last for years.

First-quarter GDP data due this week will provide an insight into the early hit from the lockdowns. In Belgium, the economy shrank almost 4% in the period. Similarly gloomy figures are expected from France, Spain and Italy when they report on Thursday. The ECB will announce its latest policy decision also that day.

©2020 Bloomberg L.P.