Germany, Europe's badly bruised economic powerhouse, will be hit by a deep recession by the second quarter, confirms Deutsche Bundesbank, the country's central bank.
Germany, however, is well-positioned to cope with the upcoming economic downturn due to its strong public finances, said Bundesbank in a report released Monday. The resilient German economy has managed to survive the global trade war launched by President Donald Trump but is now taking massive damage from COVID-19. The pandemic is forcing businessess to go bankrupt at an alarming rate and is hurtling thousands of employees into joblessness due to social distancing and lockdowns.
"The slide into a pronounced recession cannot be prevented," said Bundesbank. "German public finances are well-positioned for this."
The bank said federal government measures might at least bolster confidence the inevitable economic damage can be mitigated. Bundesbank president Jens Weidmann praised the German government's "quick and correct" actions in this regard.
Germany has crafted an emergency budget worth more than $160 billion (€150 billion) in the hope of maintaining jobs at businesses threatened the pandemic, and cushioning the long term cost of the recession.
The European Central Bank (ECB) has also promised to help see Germany through the upcoming recession with purchases of up to $1.18 trillion (€1.1 trillion) worth of euro zone debt this year. Economists said this move should keep lowering borrowing costs for both businesses and governments.
The ECB also sees a recession as in the cards for Germany. A recession in Germany "is now inevitable" as COVID-19 rampages through the country said ECB Governing Council member Jens Weidmann.
Weidmann said the emergency $800 billion (€750 billion) bond-buying the program agreed upon by the ECB this week to calm stress in financial markets don't mean the ECB's coffers are now empty. He pointed out central banks are only supported acts, and that government must be at the forefront of the fight against COVID-19 and its deleterious economic impact.
"Monetary policy can help, but this time it can't be the first line of defense," he noted.
Some ECB policy makers are unhappy the bond-buying could require them to raise the limits on how much debt the institution can hold. This controversial move, which was implemented in 2015 with the launch of quantitative easing is meant to address concerns the ECB would breach European Union law by financing governments.
Weidmann said the ECB Governing Council is unanimous that action is needed "even if we had differences in individual points."
Germany is currently the fifth-most COVID-19 infected country in the world, according to data from both the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University and Worldometer, an online database.
As of Monday afternoon, New York time, CSSE reported 29,056 confirmed COVID-19 cases in Germany and 118 deaths, the ninth-largest toll in the world. On the other hand, Worldometer also reported 29,056 cases in Germany but 123 deaths.