Germany plunges into recession; virus-induced slump may last until mid-year

Europe's economic powerhouse Germany plunged into recession in March, with the slump sparked by the coronavirus pandemic likely to last until the middle of the year, the economy ministry said Wednesday.

"Falling global demand, interruption of supply chains, changes in consumers' behaviour and uncertainty among investors" had all made themselves felt in the export giant, the ministry said.

The economic blow from the virus fell just as Germany was beginning to recover from a 2019 marked by the impact of trade wars and Brexit fears. Industry in particular had seen rises in new orders and activity as 2020 got underway, the ministry noted.

But "given the massive demand and supply shock at home and abroad from the coronavirus pandemic, economic developments reversed course" for manufacturers, it said.

At home, Germany has been in progressively tighter lockdown since mid-March, with Chancellor Angela Merkel set to discuss with state premiers Wednesday whether to extend restrictions beyond the present April 19 cutoff date.

"Even if the first protective measures can be loosened somewhat (after April), growth will remain very muted and only revive bit by bit," the economy ministry forecast.

To cushion some of the blow, Berlin has passed a rescue package totalling 1.1 trillion euros, ranging from guarantees for bank lending to business to a state fund that could buy up stakes in stricken companies if necessary. The federal government also eased access to a scheme that tops up workers' wages if their employer slashes hours.

The BA federal labour agency said some 725,000 companies had applied for the assistance, adding that the number of workers affected will likely be "significantly" above the 1.4 million helped in the 2008-9 financial crisis. Berlin estimates that around 2.1 million workers will have to fall back on the support.