Coronavirus brings German economy to near stagnation

Germany's economy is close to stagnating in the first quarter of 2020 as a result of the coronavirus outbreak, according to the DIW economic institute, which added that if the virus continues to spread worldwide, German industry would be hit hard.

DIW said that the country's GDP would grow by just 0.1% when compared with the fourth quarter of 2019.

“So far, however, the corona effect has been unclear and cannot be quantified,” said DIW Economic Director Claus Michelsen.

German industry would be especially affected if the outbreak of the virus became a pandemic, leading to disruption of supply chains for products sourced from China. 

Forecasts for the Germany's economy - long seen as the engine room of Europe - are generally bleak even without the coronavirus compounding the situation. A report from Capital Economics, a London-based research firm said: “[W]e think the German economy will not grow in the first half of this year either, even if the effects of the coronavirus are contained."

If the report is correct, then the base case for Germany is more of the same zero growth, with the coronavirus adding an enormous element of added uncertainty that could make the situation deteriorate further. 

The Capital report highlights “weak global demand and falling domestic investment” for the first half of the year.

The second half doesn't seem to have a much better outlook and the German economy is likely to grow by 0.2% in 2020, compared with 0.6% in 2019.

Slow growth, however, may not be the worst of Germany's problems. The economy is hugely reliant on the export of manufactured goods, especially cars. This is where the impact of the coronavirus could have its biggest impact.

China is the world's largest market for cars, and the virus outbreak has hit the country hard with entire cities being put under lockdown to prevent the disease from spreading. This is almost certain to hamper demand for new vehicles, including German-made ones.

On top of this, automotive manufacturing relies heavily on global supply chains for components, with China being a major producer. If one part of the supply chain is disrupted, the ripple effect will be felt throughout the industry.  

“Any impact of the coronavirus on the German economy via supply-chain disruption or reduced demand from China has been small so far,” the Capital Report says. “But the longer the disruption in China continues the greater the risks.”

Back to Homepage

Back to Transportation