By Maria Martinez 
 

The German economy is expected to contract 4.2% in 2020 due to the coronavirus pandemic and its related containment measures, according to the spring report of leading economics research institutes in Germany.

Gross domestic product is likely to have shrunk 1.9% in the first quarter and is expected to contract 9.8% in 2Q due to the lockdown, being the sharpest decline ever recorded in Germany since quarterly national accounts began in 1970, the report said.

The contraction expected in 2Q is more than twice as steep as the decline during the global financial crisis in the first quarter of 2009, the German institutes said.

"The recession is leaving very clear marks on the labor market and the government budget," Timo Wollmershaeuser, head of forecasts at the Ifo institute, said.

At its peak, the unemployment rate is expected to rise to 5.9% this year and the number of short-time workers will swell to 2.4 million, the report says. On average, the unemployment figures will rise by 250,000 to 2.5 million year-on-year.

"Germany is in a good position to cope with the economic slump and to return in the medium term to the economic level that it would have reached without the crisis," Mr. Wollmershaeuser said.

A recovery is expected in 2021, when the German institutes forecast the economy to grow 5.8%.

The downside risks associated with this forecast are considerable, the German institutes warn, as the pandemic could abate much more slowly than anticipated and efforts to restart the economy might be less than successful and could trigger a new wave of infections.

Write to Maria Martinez at maria.martinez@wsj.com

(END) Dow Jones Newswires

April 08, 2020 04:24 ET (08:24 GMT)