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German government interim projection forecasts clear recovery after historic slump
The coronavirus pandemic has sent the German economy into its worst recession since the Second World War. Given the sharp decline in economic activity during the first half of 2020, the Federal Government is expecting GDP to drop by an annual average of 5.8% this year (price-adjusted). The second quarter alone saw GDP fall by 9.7% compared to the previous quarter. In May, however, the recession already bottomed out. The monthly indicators have since been showing clear signs of recovery. In light of the incipient upturn, a growth rate of 4.4% is expected for 2021. It may take until early 2022, however, for GDP to reach pre-crisis levels again.
The Federal Government’s projection is based on the assumption that there will be no second lockdown like the one in late March and April, when far-reaching measures were imposed to restrict social activity in public spaces with a view to protecting human life and health. Wherever infection rates rise again, targeted regional measures will be taken so that the economy will be able to continue on the path of recovery in the coming months. However, given the course the pandemic has taken in other important trading countries, the recovery process will probably be slow and prolonged.
“My thanks particularly go to the citizens of our country for the responsible actions they have taken in recent months to contain the coronavirus pandemic. We must now secure this success through continued vigilance. Following the lockdown in spring, the economy is now on the path to recovery, which is a testament to the strength and resilience of companies in Germany and to the dedication of their employees. It also shows that the unprecedented protective shield established by the Federal Government and the economic stimulus package that has been launched – both with a total volume of over €1 trillion – are reaching people and companies and giving a clear impetus to get the economy back on growth track.
We are expecting significant economic growth for the third quarter of this year. Recently, business sentiment has been largely positive again, and business expectations have actually been better than before the coronavirus crisis. There are also some first positive signals from the labour market. This is good news, but it must not blind us to the fact that the recovery process will take quite some time in view of global pandemic activity.”
Further details of the projection:
The impact of the coronavirus pandemic has led the global economy into a deep recession that is worse than the 2008/09 financial crisis. Based on projections by international organisations (IMF, OECD), we expect an annualised decline of 4.4% in global GDP for 2020, and a 6.2% recovery for 2021.
In Germany, declines can be expected for the majority of GDP expenditure components. Owing to the negative development of sales markets, German exports will drop by 12.1% in 2020 (2021: +8.8%).
The decline in domestic demand and in demand for intermediate goods from abroad is having an impact on imports. These will not fall as sharply as exports, however ( 8.1% in 2020; +7.5% in 2021), not least because of the comprehensive measures that have been put in place to bolster incomes and demand.
The German current account surplus in terms of nominal GDP is therefore likely to decrease in 2020 and to remain below 2019 levels in 2021.
Investment in equipment is closely related to the capital-intensive export industry. Due to the recession in manufacturing brought about by the pandemic and due to the general rise in uncertainty, we expect investment in equipment to decline markedly in 2020 ( 16.5%). As the economy gradually recovers, however, there will probably be an upward trend in 2021 (+12.0%).
The demand for investment in construction is proving robust. Major drivers are the ongoing low-interest rate environment and increased liquidity (2020: +3.8%). Next year, however, increasing price levels and capacity constraints on the part of companies will probably slow down this growth (2021: +2.4%).
In 2020, public-sector spending on consumption continues to have a stabilising effect on demand (+4.8%). It will remain at a high level in 2021, albeit with a slight reduction ( 0.4%). Expenditure on capital investment by the state will rise markedly during the forecasting period before stabilising in 2021 (2020: +12.1%, 2021: 4.1%).
The labour market came under a lot of pressure from March to May. In 2020, gainful activity is likely to decline by 380,000 people. People in marginal employment are particularly affected. Short-time employment, which reached a record high in April (5.9 million people), continues to be instrumental in preventing lay-offs. Unemployment is likely to rise to 5.9% as an annual average. The latest figures, however, indicate a recovery in the labour market which is likely to continue throughout 2021 (annual average for 2021: +190,000 gainfully active persons, 110,000 unemployed persons).
The key macroeconomic figures contained in the interim projection form the basis for the separate tax revenue forecast to be compiled from 8 to 10 September 2020.
Key figures of the 2020 interim projection
Gross domestic product by expenditure (price adjusted)
Year-on-year change (in per cent)
Gross domestic product 
Private consumption 
Gross fixed capital formation
- of which equipment
- other investment
Changes in inventories and net acquisition of valuables (contribution to GDP growth)
Net foreign demand (contribution to GDP growth) 
Private consumption 
Gainfully active persons (domestic)
Unemployed persons (Federal Employment Agency)
 In 2020, calendar-adjusted growth is 6.1%, the rate over the course of the year is 4.9%.
 Including non-profit-making organisations.
 Absolute change in net foreign demand in per cent of pre-year GDP (= contribution to change in GDP).