Germany Heading for 9.4% Contraction This Year, Institute Says

(Bloomberg) -- Germany’s economy is heading for a contraction of almost 10% this year due to the fallout from the coronavirus pandemic and will recover only gradually from its worst recession since World War II, according to one of the nation’s leading research institutes.

Gross domestic product will likely shrink by 9.4% in 2020, before expanding by 3% next year, the Berlin-based DIW institute predicted Thursday in its latest forecasts for Europe’s largest economy. The projection for this year compares with the Bundesbank’s -7.1% and the OECD’s -6.6%.

“The slump in the German economy this year will be significantly worse than during the financial crisis some 10 years ago,” DIW President Marcel Fratzscher said in a statement. “The fact that many companies are dependent on exports makes the German economy very vulnerable in times of crisis.”

A government stimulus package agreed last week would provide some support if implemented in full, limiting this year’s contraction to 8.1% and boosting growth to 4.3% in 2021, the institute said.

Geraldine Dany-Knedlik, a DIW economist, said that the global impact of the virus outbreak on consumers and companies is likely to significantly dampen household spending and investment into next year.

“Therefore the world economy will only recover slowly,” Dany-Knedlik said. The hit to manufacturing and services is unlikely to be fully compensated for next year, she added.

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