Germany records its first public deficit in eight years

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The German state recorded a public deficit in the first half of 2020, the first in eight years against the backdrop of the coronavirus crisis, while the GDP fell a little less from April to June than initially announced.

The deficit in public accounts (State, regions, municipalities and Social Security) reached 51.6 billion euros from January to June, which represents 3.2% of German GDP over the period and exceeds European criteria, which set a limit of 3% of GDP, the Statistics Office said on Tuesday.

At the end of June 2019, Germany still posted a surplus of 2.7% of its public accounts, placing the country at the center of criticism from its European trading partners who regretted its lack of investment.

Due to the exceptional circumstances linked to the crisis, Berlin urgently released hundreds of billions of euros for its economy in March 2020. The federal government had then borrowed for 218.5 billion euros.

Result: “the state budget has plunged into the red for the first time in eight years”, notes Fritzi Köhler-Geib, chief economist at KfW bank.

But “that was to be expected and it is fair”, because “the public money has been invested in broad and rapid stabilization measures”, she adds.

The effects are being felt on the business climate measured by the IFO institute, which recovered in August for the fourth month in a row, according to a separate statement on Tuesday.

Office Destatis has also reassessed the decline in GDP in the second quarter of 2020 compared to the previous one, to -9.7% against -10.1% initially announced, as well as that of the first quarter, to -2.0 % against -2.2% previously indicated.

Almost all sectors of the economy contributed to the decline in GDP from April to June, which remains “the highest since statistics were entered in 1970,” says Destatis.

In retail, private consumption fell 10.9% from April to June, as many stores and restaurants remained closed until May, and non-construction investment fell 19.6%.

Exports contracted by more than 20% against 16% on the import side, i.e. a larger decline than during the last great crisis of 2009.

Only general government spending rose 1.5% quarter over quarter.

Year on year, the German economy plunged 11.3% in the second quarter compared to the same period of 2019.

However, all activity indicators to date indicate a recovery during the summer months.

The crisis is nevertheless attacking the structures of the largest European economy, pushing the German government to consider, in particular, doubling the duration of compensation for the partial unemployment scheme, from 12 to 24 months.

This “illustrates not only the government’s determination to compensate for the fallout from the crisis as long as possible, but also how difficult it will be to get out of this crisis,” comments Carsten Brzeski, economist at ING.

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