Germany expects contraction in 2020 won’t be as deep as feared

Bloomberg

The German government expects the economic fallout from the coronavirus to be smaller than feared this year, according to a person familiar with forecasts to be published Tuesday.
Chancellor Angela Merkel’s ruling coalition predicted in April that the economy would contract by 6.3% in 2020, its worst recession since the nation began a recovery after World War II, before rebounding with growth of 5.2% next year.
Activity in Europe’s biggest economy has staged a strong rebound after collapsing in the second quarter, and German companies have turned slightly more optimistic that the economy will continue on its long road to recovery.
Reports on Tuesday showed that German unemployment declined in August and a gauge of factory activity rises to a 22-month high. Still, the manufacturing report from IHS Markit wasn’t all positive. The machinery and equipment sectors remain weak, and businesses continued to cut jobs.
To soften the blow from the pandemic, Merkel’s government suspended constitutional debt limits as part of a massive stimulus program. However, Finance Minister Olaf Scholz has said he doesn’t expect gross domestic product to reach pre-crisis levels before late 2021 at the earliest.
Infections are on the rise again after the summer holiday season, stoking fears of a new round of lockdowns that could plunge economies across Europe back into recession.
The German government will revise up its forecast for 2020 gross domestic product (GDP) to a decline of 5.8%, Der Spiegel magazine reported on Tuesday, without identifying the source of its information. It will also revise down its growth prediction for next year to 4.4%, the report said.

German joblessness falls again
German unemployment eased for a second month as the economy slowly recovered from the coronavirus pandemic.
A drop of 9,000 in August left the total number of jobless people at 2.92 million, the Federal Labour Agency said on Tuesday. At the same time, millions of workers remain furloughed, with around 37% of companies still making use of government wage subsidies, according to the Ifo Institute.
Even as the labour market improves, Germany’s recovery will likely take some time. While industrial production and retail sales have roared back to life, some surveys are signalling weakening momentum and many companies have warned about their profits.
Last week, the government agreed to provide enhanced job-preserving subsidies until the end of 2021, allocating around 10 billion euros ($12 billion) more to help Europe’s biggest economy.
Economy Minister Peter Altmaier is due to present new forecasts later on Tuesday that are said to show a smaller than previously feared slump in 2020, and weaker than anticipated growth next year.