Germany in recession as economy shrinks 2.2% in the first quarter

The statistical figures of Europe’s biggest economy offered a first glimpse of the damage caused by the coronavirus crisis. (Reuters)
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Updated 15 May 2020

Germany in recession as economy shrinks 2.2% in the first quarter

  • Second-biggest quarterly decline since Germany was reunited in 1990
  • But German economy looks set to emerge faster and in a stronger position than most of its neighbors

BERLIN: The German economy shrank by 2.2 percent in the first quarter compared with the previous three-month period as shutdowns in the country and beyond started to bite, official data showed Friday. That means Europe’s biggest economy went into recession following a small dip at the end of last year.
The figures from the Federal Statistical Office offered a first glimpse of the damage caused by the coronavirus crisis, which the government is trying to limit with rescue programs and has pushed other big European economies like France and Italy into recession.
The decline in the January-March period was the second-biggest quarterly decline since Germany was reunited in 1990, exceeded only by a 4.7 percent drop in the first quarter of 2009 at the height of the global financial crisis, senior statistics office official Albert Braakmann said.
It followed a 0.3 percent gain in last year’s third quarter and a 0.1 percent contraction in the fourth quarter — the latter figure revised down from the initial report in February of zero growth. That revision put Germany into a technical recession, defined as two consecutive quarters of economic contraction. In year-on-year terms, the economy took a 2.3 percent hit.
March was the month in which the coronavirus pandemic hit Europe, with first Italy and then other countries imposing sweeping restrictions on public life and businesses.
Germany itself started shutting down in mid-March. Its lockdown was less severe than those imposed in Italy, Spain and France and it never ordered factories closed, but companies did largely stop production in some areas — such as the automaking sector — and supply chains were disrupted.
Recent data showed a 15.6 percent month-on-month decrease in factory orders in March, and a 9.2 percent drop in industrial production. Exports dropped 11.8 percent, the strongest decline since Germany reunited in 1990.
The country started loosening restrictions on April 20 and the process has gathered pace recently. Shops have now reopened, restaurants are gradually opening up and auto production has restarted.
A far worse economic performance is expected in the current second quarter.
The German economy “will start to defreeze” in May, Allianz economist Katharina Utermoehl said in a research note. “In the short term, some catch-up effects can be expected, but the economy’s underlying growth momentum is likely to pick up only gradually in the coming months.”
With millions of people in a government-backed short-time work program and unemployment rising, consumers are likely to refrain from making major purchases. she said.
Data already released have shown that the 19-nation eurozone’s economy shrank by a record 3.8 percent in the first quarter as business activity was frozen. France and Italy showed both fell into recession, with the French economy shrinking 5.8 percent, the most since the country’s statistics agency began keeping the figures in 1949.
Utermoehl said that the German economy looks set to emerge faster and in a stronger position than most of its neighbors, with an 8.9 percent decline in full-year gross domestic product in 2020 that would be less severe than those of France or Italy.
She pointed to the fact that other European heavyweights needed a stricter and longer lockdown, their greater reliance on the services sector and tourism, and said that “the decisive and comprehensive policy action on behalf of the German government has been key in limiting the economic damage.”


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”