German economy: On the long, slow road to normality

The German economy has bottomed out, but its recovery is going to be long and arduous. Nevertheless, following the almost two-digit slump in economic output in the second quarter of 2020, recovery is likely to be accompanied by above-average rates. However, it is assumed that a second wave will not occur and lockdown-like measures will not be reimplemented. Private consumption in particular will markedly increase over the third and fourth quarters of 2020. Short-time work is declining, contributing to the increase in disposable income. Additionally, households saved considerably during the height of the pandemic in spring 2020 and are spending their savings gradually over the second half of the year. The VAT reduction and further stimulus program measures are supporting consumption and thus the economy. In contrast, the recovery in foreign demand for German products is likely to be more protracted. The economy and labor markets in many countries have been hit much harder than in Germany, and demand for consumer durables and capital goods - the focus of Germany's export industry - in particular is likely to be subdued. The pre-crisis level of economic activity will likely not be reached until early 2022. In 2020, German GDP is expected to drop by an annual average of 6.0 percent and grow by 4.1 and 3.0 percent in 2021 and 2022, respectively.