Growth curve with pen symbolizes the economic situation; source:


  • The German economy experienced a record drop in economic output in the first half of the year. Despite the ongoing pandemic, it has been recovering since the post-lockdown relaxations in May. This recovery will take quite some time.
  • The initially rapid process of recovery in the industrial sector is continuing, but it will slow down in view of the weak foreign demand. It has so far largely been driven by the sectors of cars and car parts.
  • There are signs of a stabilisation on the labour market. Unemployment fell by 18,000 people between June and July after three months of sharp increases. According to initial estimates by the Federal Employment Agency, the level of short-time work fell from 6.7 million people in May to 4.5 million in April. There was only a slight fall in gainful employment in June. The leading indicators have continued to improve.

General situation: economic situation in the pandemic

At the end of July, the Federal Statistical Office recorded an unprecedented drop of 10.1% in gross domestic product during the second quarter. [1] Economic output fell, and even slumped in some cases, in virtually all areas of the economy apart from the construction sector. Thanks to the widespread use of short-time work arrangements, employment was largely shielded from this development. The gradual lifting of restrictions has led to a recovery in the Germany economy since May. The industrial sector was able to sharply expand its production and sales in May and June. Nevertheless, its production level in June was only just over 87% of that of Q4 2019, i.e. prior to the outbreak of the pandemic. The economic recovery is also taking place in many services sectors. In view of this rather more favourable situation, the third quarter will see a powerful rise in GDP. The future development of the economy will very much depend on how the pandemic shapes up both in Germany and abroad. Some of the economies of our trading partners are still greatly affected by the pandemic. For this reason, following the initial fairly strong improvement in May, the ongoing process of economic recovery in Germany will be slow and take quite some time. Basically, however, the companies are considerably more optimistic again. According to the July ifo Business Climate Survey, the macroeconomic expectations for the coming six months are positive on balance, and more optimistic than they were in 2019.

World economy: improving prospects

Whilst the recent global economic statistics have been gloomy, leading indicators are suggestive of a recovery as the year progresses. Global industrial output dropped by around 12% in April/May in year-on-year terms. Global trade in goods actually diminished by around 17%. Early reports from major economies about their GDP development in Q2 also highlight the extent of the COVID-19-related recession in the first half of the year. GDP shrank by 12.1% in the eurozone, and by 9.5% in the United States. For the second half of the year, however, the indicators of sentiment are providing positive signals. In July, the global Purchasing Managers Index (PMI) of J.P. Morgan/ IHS Markit for the industrial sector rose above its growth threshold for the first time since January, reaching 50.3 points.

The future development of the global economy largely depends on the course of the pandemic and the measures and behavioural changes to restrict its further spread. The various countries in different parts of the world are affected to differing extents. According to the Robert Koch Institute, China, the source of the pandemic, now only has very few cases, and is already witnessing an economic recovery, with GDP growth of 11.5% between the first and second quarters. At present, other countries are unfortunately emerging as coronavirus hotspots (more than 120 cases per 100,000 inhabitants). These include the United States, South Africa and parts of Latin America, including Brazil and Argentina. Increased numbers of cases (60-119 cases) are also being seen in southern and eastern Europe, e.g. in Spain, Romania and Hungary, and to a lesser extent (20-59 cases) in Russia, India, Sweden and the United Kingdom. This shows that the external economic environment is likely to remain difficult for the German economy for some time to come.

German foreign trade sees further recovery

The recovery in the exports of goods and services continued in June. They were up by 10.8% in nominal terms, adjusted for seasonal fluctuations, from the May figure. May had already seen a clear increase, of 8.2%, following the slump caused by the pandemic. The quarterly figure still showed a tangible drop of 21.2%. Despite the recovery, the level of exports of goods and services is still down at 83% of the pre-crisis level in February.

Imports of goods and services are still well below the pre-crisis level. This is partly because their growth in June was comparatively weak in seasonally adjusted and nominal terms, at +5.4% from May (May: +2.4%). In the quarterly comparison, imports fell by an unprecedented 19.3%.

The leading indicators for foreign trade and investment suggest that the recovery will continue. On balance, the ifo export expectations for the manufacturing sector were positive in July for the first time since January. The level of new orders from abroad also improved further in June, with a sharp seasonally adjusted rise of 22.0% against May. These signals suggest that the process of recovery will continue in the course of the year. However, the process will take quite some time.

Industrial sector – recovery continuing

The recovery in the manufacturing sector that had started in May continued strongly in June. In seasonally adjusted terms, it expanded by 8.9%. Growth was again particularly pronounced in the industrial sector, at +11.1%. As was the case in May, a clear increase (of 54.7%) in the important sector of cars and car parts played a major role here. After production had pretty much come to a halt in April, it was back up at approximately 80% of the level seen in Q4 2019, prior to the outbreak of the coronavirus pandemic. The construction sector, which had previously experienced fewer restrictions due to the pandemic, registered a 1.4% rise. The hard shutdown in April leaves its mark in the quarterly comparison. For example, output in the goods-producing sector was 16.1% below the previous year’s level in the second quarter. Industrial output declined by 19.3%, and construction sector output dropped by 4.2%. These clearly negative quarterly figures must not hide the fact that a significant recovery actually took place during the second quarter.

New manufacturing orders recovered strongly between May and June, by 27.9%, following a more restrained rise in May of 10.4%. Orders of capital goods rose strongly, by 45.7% (cars/car parts: +66.5%). The rise in intermediate goods was also impressive (+10.6%), whilst consumer goods registered a moderate increase (+1.1%). In the quarterly comparison, there was a clear fall of 22.9% in new manufacturing orders, primarily due to the weak demand from the non-eurozone (-30.7%) and the eurozone (-26.2%).

Like the ifo business climate and the PMI, the June figures for production and new orders reflect a clear recovery in the industrial sector. According to the surveys by ifo and IHS Markit/BME in July, the companies are expecting business to pick up further during the coming months. However, in view of the continuing weakness of foreign demand and the uncertainties about how the pandemic will continue, the recovery process is likely to take quite some time.

Clear improvement in retail sales

There has been a clear rise in consumption since May as shops have re-opened. The retail trade (excluding vehicles) enjoyed record sales due to pent-up demand and the boom in mail-order and online trade. It came close to maintaining this high level in June. It is likely that on-site trading maintained the level seen in May, whilst mail-order and online trading fell by 8.6% after the sharp rises in the two previous months. Trade in vehicles rose by more than a third in May (+34.5%), but is still 22.3% below the level seen in February. The sharp rise in new car registrations by private owners in July (+87.4%) does however suggest that the recovery process is likely to continue in the near future. The ifo business climate in the retail trade improved appreciably in July. Overall, the sentiment is positive. The GfK consumer sentiment index continued its V-shaped recovery, and will attain its neutral area again in August. In terms of consumer prices, the temporary tax cuts had a clear impact on sales in July; it seems that, to a considerable extent, the cuts are being passed on to the consumers. For example, prices for goods, which make up just under half of the basket of goods, fell by 1.9% from the June level. In contrast, prices for services remained unchanged on average, if package tours are excluded: their prices were volatile. The inflation rate, i.e. the year-on-year development of prices, was slightly negative (-0.1%), after standing at +0.9% in the previous month. At the same time, prices for energy products fell by 6.7%. The inflation rate for foodstuffs (+1.2%) actually dropped by more than 3 percentage points. The core inflation rate (without energy and seasonally dependent foods) dropped by 0.6 percentage points to +0.7% in July.

Stabilisation on the labour market

Employment and unemployment have stabilised as a result of the widespread use of short-time work arrangements and the uptick in business activity. There was only a small drop in seasonally adjusted gainful employment in June, of 40,000 people, following a total fall of 600,000 people over the two preceding months. However, the number of vacancies on offer and thus the demand for labour remains low. Before they recruit new staff, companies are looking to return to normal working hours. Seasonally adjusted employment subject to social insurance contributions dropped by 74,000 people in May (April: -268,000 people). The improvements on the labour market can also be seen in the development of short-time work. In May, 6.7 million employees made use of the assistance, but the Federal Employment Agency expects this number to have dropped to 4.5 million people in June and to continue falling thereafter. Seasonally adjusted registered unemployment fell by 18,000 people in July due to short-time work and other labour-market policy instruments, after three months of sharp increases. As is usual for the time of year, the unadjusted figures went up slightly, increasing to 2.91 million. The Federal Employment Agency estimates that the impact of COVID-19 on unemployment so far has been an increase of approximately 635,000 people, with the impact of the pandemic diminishing from month to month. The year-on-year change is roughly in line with this. The leading indicators from the Institute for Labour Market Research, ifo and the Federal Employment Agency suggest that the stabilisation on the labour market will continue.


[1] The report is based on data that were available as of 13 August 2020. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.