France, Germany face historic economic declines

FRANKFURT AM MAIN, Germany – Germany and France, the European Union's two largest economies, are bracing for a painful recession as the coronavirus pandemic slashes output to the lowest levels in decades, forecasts said Wednesday, April 8.

Gross domestic product (GDP) in export powerhouse Germany is expected to shrink by nearly 10% in the 2nd quarter as shutdowns aimed at slowing the outbreak paralyze the global economy, the country's leading research institutes said in a report.

The 2nd quarter plunge in GDP should be twice as big as any during the 2008-2009 financial crisis and would mark the steepest fall since the institutes' records began in 1970.

"The corona pandemic will trigger a serious recession in Germany," the 6 institutes including Ifo, DIW, and RWI said, estimating that the economy already contracted by 1.9% year-on-year in the 1st quarter.

France meanwhile is already in a technical recession, the Bank of France said.

Official data showed the French economy shrank 0.1% in the last quarter of 2019, and the central bank estimates it contracted around 6% in the first 3 months of 2020.

A recession is defined as two consecutive quarters of economic contraction. 

According to the central bank, France's 1st quarter performance was its worst since 1945.

Global gloom

The dire forecasts bring down the curtain on years of growth in two of the EU's wealthiest nations.

"After 10 years of growth we will experience a recession this year," German Economy Minister Peter Altmaier said.

He warned that the pace of the economic recovery would depend on when the measures to restrict people's movements "for the protection of lives and health" can be scaled back.

The French and German data did not come as a surprise after bodies like the International Monetary Fund and the World Bank had already sounded the alarm about the health of the global economy.

World Trade Organization chief Roberto Azevedo added to the gloom on Wednesday when he said the looming downturn "may well be the deepest economic recession or downturn of our lifetimes."

The WTO expects global trade to plummet by up to a third in 2020 as the pandemic wreaks unprecedented havoc on supply and demand.

"The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself," Azevedo said.

2021 rebound?

France and Germany have joined nations worldwide in taking drastic steps to stem the spread of the virus, keeping millions of citizens at home, closing schools and shops, and shutting down factories.

For every two weeks the country is locked down by the virus, the Bank of France said it expects the economy to shrink by 1.5%.

French economic activity plunged a whopping 32% in the last two weeks of March as the coronavirus crisis intensified, it added.

Bank of France Governor Francois Villeroy de Galhau warned that April was expected to be "at least as bad" as late March.

"Economic growth will be strongly negative in 2020" before bouncing back in 2021, he told RTL radio.

Germany's Altmaier has said he is bracing for the country's economy to contract by around 5% this year, the biggest decline since 2009.

The experts in the report on Tuesday, April 7, forecast a contraction of 4.2% for Germany over the full year.

But they also sounded a note of optimism, saying Germany with its bulging state coffers was "well positioned" to cope with the economic slump.

For 2021, the institutes expect Germany to notch up growth of 5.8%.

Governments across Europe have promised vast rescue packages to cushion the coronavirus blow for companies and employees.

Berlin's 1.1-trillion-euro ($1.2-trillion) aid program is one of the most ambitious announced so far.

The package includes state guarantees for loans to businesses, easier access to benefits for workers placed on reduced hours, and direct support for the hardest-hit firms. – Rappler.com