German Economy May Shrink After Virus Flare-Up, Bundesbank Says

(Bloomberg) -- The German economy could stagnate or even shrink in the final three months of the year after a spike in coronavirus infections forced the government to impose new curbs on public life, the Bundesbank said.

While domestic restrictions are weaker and more focused on hospitality and leisure activities than in the spring, exports are suffering from a resurgence of the virus across Europe, the institution said in its monthly report. On balance, it expects the hit to the economy to be less severe than after the lockdown in March and April.

“A stabilizing fiscal policy remains important next year,” the Bundesbank said. The government “has enough scope to significantly expand public stabilization if needed.”

Germany has far fewer cases and deaths than nations such as the U.K., France and Italy, but authorities have warned that rapidly filling hospitals are threatening to overload the health system.

With the spread of the virus easing too slowly after the latest round of restrictions, Chancellor Angela Merkel is seeking even tighter curbs on public and private gatherings.

“It remains a challenge to calibrate the measures in a way that the pandemic is effectively kept in check while limiting public life and therefore the economy as little as possible,” according to the Bundesbank. Recent news about progress in finding a vaccine “give hope that this will become easier.”

After falling in September and October, the number of furloughed workers could rise above levels seen in August, according to the central bank.

The European Central Bank is preparing a new round of stimulus to respond to a possible double-dip recession in the euro area in the final quarter of the year. Policy makers will focus on emergency bond purchases and long-term loans, President Christine Lagarde has said.

©2020 Bloomberg L.P.