What's going on?
Germany could’ve sworn this thing used to be bigger: fresh data out on Friday showed its economy shrank at its fastest pace since the 2008 financial crisis last quarter.
What does this mean?
Germany was having a rough time even before coronavirus showed up. Its economy barely grew at all in the last nine months of 2019, as the US-China trade war, trouble in the auto sector, and Brexit uncertainty all took their toll on its crucial manufacturing sector. And now it’s shrunk 2.2% in the first quarter of 2020 – its second consecutive quarter of economic decline, officially pushing the country into recession territory.
With lockdown restrictions only slowly being lifted, Germany’s economy is set to suffer even more this quarter. Still, it’s in a better position than some: Spain, Italy, and France all saw their economies shrink by more than 4% last quarter (tweet this). Germany’s lighter lockdown measures could be one explanation, or maybe it’s down to the country’s reliance on manufacturing and trade – sectors that are holding up better than the services and tourism sectors that dominate Europe’s south.
Why should I care?
For markets: Withdrawing markets.
Germany’s recession is having a knock-on effect on its eastern European neighbors, most of which are classified as emerging markets. The region was the bloc’s fastest-growing until recently, but now – because those countries’ supply chains are so tightly linked with Germany’s – it’s on track for its worst recession since the fall of the Soviet Union.
The bigger picture: Luft in the lurch.
The German government has already mobilized over a trillion dollars to help support its businesses in response to the crisis, and airline Lufthansa is trying to get a piece of the action by negotiating a $10 billion bailout. And at least one minister is fighting its corner, saying the government should protect the company against a potential takeover from a foreign competitor that might try to take advantage of its vulnerable situation.