Coronavirus impact: Recession in Germany unavoidable, say economic advisors

Germany will not ease measures to prevent the spread of coronavirus before at least April 20, Chancellor Angela Merkel's chief of staff said

The coronavirus outbreak has made a recession in Europe's largest economy inevitable in the first half of this year, Germany's council of economic advisers said on Monday, predicting that output could shrink by up to 5.4% this year.

Germany is in virtual lockdown, with more than 57,000 infected and 455 dead. Parliament last week suspended the country's constitutionally enshrined debt brake, approving a massive stimulus package worth more than 750 billion euros ($831.60 billion) to help weather the economic fallout.

The panel that advises the government said its baseline scenario - in which the economic situation would normalise over the summer - was for the economy to contract by 2.8% this year before potentially growing by 3.7% next year.

Germany will not ease measures to prevent the spread of coronavirus before at least April 20, Chancellor Angela Merkel's chief of staff told a German newspaper at the weekend.

The advisers said a more marked 'V' shaped recession curve with widespread halts to production or longer-lasting public health measures, could lead to the economy contracting by 5.4% this year before growing by 4.9% in 2021 thanks in part to a statistical overhang.

"The coronavirus outbreak has stopped the incipient recovery," the advisors said in a report that they handed to the government on March 23 but only published on Monday. "The German economy will shrink significantly in 2020."

Economists usually define a recession as two consecutive quarters of negative growth.

Others have been more pessimistic, with the German Economic Institute (IW) last week saying the German economy could shrink by 10% this year due to coronavirus in a worst case scenario in which the lockdown continues until the end of June.

Almost one in five German companies sees itself at acute risk of insolvency due to the coronavirus crisis, a survey from the DIHK Chambers of Commerce showed on Friday, pointing to the heavy toll the coronavirus outbreak could take on Europe's largest economy.