German economy sickened by more than the virus

The Volkswagen assembly line in 1973. Germany’s economy relies on exports and car manufacturing. Image from Wikipedia Commons

This means that despite Germany suffering its biggest quarterly decline in GDP in 11 years, it has fared better than many eurozone economies.

Data from last month showed the 19 eurozone countries suffered an overall 3.8 per cent contraction in the first quarter. France decreased by 5.8 per cent, Spain 5.2 per cent and Italy 4.7 per cent.

What seems to have helped Germany, even in this desperate period of arrested commerce, is resilient government spending and construction activity.

Household spending

Germany’s statistics agency said household spending and investment in machinery and equipment fell sharply in the first quarter. However, resilient government spending and construction activity had a “stabilising effect and prevented a larger GDP decrease”.

The coronavirus crisis isn’t the only reason for the German slowdown.

The inherent problems of its export-reliant growth model were apparent in the last nine months of 2019 when Germany’s economy hardly grew at all. That was partly as a consequence of uncertainty introduced in the auto sector by the US-China trade war and Brexit.

Now the challenge will be for Germany to rebuild its prospects, but how? Exports are half its GDP and the global merchandise trade is likely to be hit hard as a result of the pandemic.

So now Germany will have to take long-overdue action and ditch the balanced-budget straitjacket.

Originally published in The Focus

PhD. Journalism by trade & inclination. Sign up for free email updates on email me at

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