Coronavirus leads to record drop in German GDP

Friday, 31 Jul, 2020

The Bureau of Economic Analysis noted that gross domestic product decreased by 5% in the first quarter.

The insured unemployment rate for people receiving benefits dropped 0.7 points to 11.1 percent, but Gorilla Trades strategist Ken Berman said he remains anxious about the elevated level.

Both exports and imports of goods and services collapsed in the second quarter, as did household spending and investment in equipment, the office said.

According to the preliminary report published by Destatis on Thursday, the German economy contracted 10.1% inter-quarter in the second quarter of 2020 when compared to the expectations of -9.0% and -2.0% seen in Q1.

This post has been updated to clarify that the BEA calculates GDP using an annualized rate.

The drop in GDP figures came as a combination of sharp declines in personal consumption, spending and investments, with the personal consumption expenditures price index dropping to 1.9% in Q2. In early estimates from the University of Pennsylvania, the CARES Act reduced the GDP contraction in the second quarter by 7 percentage points.

The country's GDP was €768 billion ($844.8 billion) in the second quarter, down from €846.9 billion ($931.6 billion) in the same quarter previous year.

Market participants were bracing for an ugly second-quarter print, with the coronavirus pandemic forcing business closures and disrupting daily life for much of the April through June period.

The growth figures released separately by the Commerce Department are given at an annual rate - a measure of the full-year result if the damage was translated over 12 months.

Initial jobless claims also rose slightly last week to 1.43 million, which could put more pressure on negotiators in Washington to break an impasse over another round of coronavirus aid. Exports and imports were both down more than 20% from a year ago, while consumer spending - the main driver of the USA economy - fell 10.7% year-on-year.

USD/JPY posts small gains and trades just above 105.00 amid a broadly weaker USA dollar and cautious market mood heading into the US Q2 GDP release.

Economists surveyed by MarketWatch had already predicted an 18% comeback for the third quarter.

Germany also managed to avoid mass layoffs, with separate data on Thursday showing that unemployment was stable at 6.4 percent in July, the same rate as June. The housing sector has done well as the economy reopened but many other sectors, especially the labor market, have struggled or stalled.