The German government expects the economic devastation caused by the COVID-19 outbreak to be less severe this year than initially feared.

German forecasts

However, the government sees a weaker recovery in Europe’s powerhouse economy next year due to lower external demand.

Presenting the government’s updated forecasts on Tuesday, Economy Minister Peter Altmaier said the economy was doing better than expected and was quickly recovering from the coronavirus shock thanks to the strong financial response from the government.

“In general, we can say that we have seen a V-shaped development, at least for now,” Altmaier told reporters, adding that he did not expect authorities to take socio-economic lockdown measures again as they did in March and April.

Altmaier said Berlin has revised its 2020 GDP forecast from the previous forecast of -6.3% to -5.8%.

Still, this figure will represent the biggest economic collapse for Europe’s largest economy since the end of the Second World War. During the 2009 global financial crisis, the German economy contracted 5.7%.

For 2021, the government lowered its growth forecast from the previous forecast of 5.2% to 4.4%. Altmaier stated that this means that the economy will not reach its pre-epidemic size before early 2022.

The government expects exports to fall by 12.2% this year, before rising by 8.8% in 2021. Private consumption is expected to decline by 6.9% this year and then recover by 4.7% in 2021.

German data

Meanwhile, the manufacturing purchasing managers index (PMI) in Germany remained below the predicted 53.0 level at 52.2 in August, as it exceeded the previous 51.0.

The unemployment rate in the country remained unchanged at 6.4 percent in line with expectations.

Euro inflation

Eurozone inflation turned negative last month for the first time since May 2016, increasing the likelihood that the European Central Bank (ECB) will have to engage in more stimuli to achieve price increases that have been below its target for more than seven years.

Annual inflation in the 19 countries sharing the euro fell from 0.4% in July to -0.2% in August and underperformed analysts’ expectations of 0.2%. This is also far from the target of 2% of the ECB.

Worryingly for policymakers, the underlying inflation also fell, proving that the bloc’s deepest recession in living memory was not only a temporary shock but could also be a larger and longer-lasting hurdle on consumer prices.

But even with the stimulus in place, ECB Chief Economist Philip Lane recently said that indifference risks consolidating low inflation and reducing price growth expectations, making it even more difficult for the ECB to reach its target.

The unemployment rate in the Eurozone, on the other hand, came at 8.0%, which was predicted in July, at 7.9%, compared to 7.7%.

Eastern Mediterranean tensions

Turkish Foreign Minister Mevlut Cavusoglu said in on Tuesday that Ankara was open to dialogue with Greece to resolve disputes about natural resources in the eastern Mediterranean.

The two NATO member countries disagree over potential hydrocarbon resources in the Eastern Mediterranean, based on conflicting views on the extent of their continental shelf.

While both sides insist on protecting their rights, they say they are ready to resolve the dispute through negotiations. As Ankara and Athens held military exercises in the Eastern Mediterranean, the conflict escalated.

Cavusoglu said at a press conference, “If you are open to solving our current problems through dialogue, we are always open. Unfortunately, because our calls were ignored… we took the necessary steps on the field and at the table.”

European Union’s executive branch the EU Commission that supports Greece called for dialogue, and told Ankara to refrain from unilateral steps that fuel tensions and has threatened sanctions on Turkey in case of failure to do so.


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