German Economy Slowly Recovering Following a Deep Slump: DIW Economic Outlook

Abstract

The coronavirus recession has left deep marks on the German economy and despite economic policy action, it is likely to heal only slowly. The partial easing of the lockdown and a gradual revival of global value chains are generating positive stimuli, but massive income losses will curb demand for some time to come. The German Federal Government was able to avoid the worst by implementing measures to stabilize the domestic economy, but it can do little to counteract a slump in foreign demand. This decline in foreign demand reflects the devastating effects of the recession on the labor markets of many countries. Overall, economic recovery will be slow in Germany: The German economy cannot compensate for a decline of 9.4 percent in GDP in 2020, even with GDP growth of 3.0 percent in 2021.