German economy plunges by record 9.7%

The German economy, Europe's largest, contracted by a record 9.7 per cent in the second quarter as consumer spending, company investments and exports saw a steep decline due to the coronavirus pandemic.
Although the contraction was the worst on record, it was still less than what economists initially anticipated, after the Federal Statistical Office (Destatis) revised the quarter-on-quarter contraction in gross domestic product down from the 10.1 per cent it initially reported at the end of July.
The economic slump was much stronger than during the 2007-08 financial crisis which saw a 4.7 per cent decline in the first quarter of 2009, and it represented the sharpest decline since Germany began to record quarterly GDP calculations in 1970, the office said.
Consumer spending shrank by 10.9 per cent in the quarter, capital investments by 19.6 per cent and exports by 20.3 per cent, according to official data. Construction activity, normally a consistent growth driver for the German economy, fell by 4.2 per cent.
Meanwhile, stimulus measures designed to support consumers and businesses through the worst of the crisis resulted in the state spending €51.6 billion ($61 billion) more than it took in during the first half of 2020, Destatis said.
An 'optimistic' outlook
Despite the economic slump, however, German business morale improved more than expected in August. According to a survey published by the Ifo Institute for Economic Research, firms assessed their current business situations with far more optimism than in the previous month.
"In the service sector, the business climate index rose sharply," the statement read. "The service providers were significantly more satisfied with their current business situation." The outlook for the coming six months also improved, according to the study.
The German government has forecast a 6.3 per cent economic decline for the entire year. At the start of the pandemic in March, experts pushed through a multibillion-euro coronavirus aid package, followed by another €130-billion stimulus in June.
The German decline was one of the less drastic second-quarter contractions among Europe's major economies as widespread shutdowns over the pandemic ground economic activity to a halt. France, Italy, Spain and the UK all saw double-digit declines in their economic activity.