Germany in Recession


Preliminary data for Q1 showed German economic activity contracting -2.2% q/q, in line with expectations and leaving the working day adjusted annual rate at -2.3%. At the same time Q4 numbers were revised down to -0.1% q/q from 0.0% q/q reported initially, so Germany is officially already in recession. The contraction in the second quarter was mainly driven by the impact of lockdowns, first abroad and then in Germany, which weighed on both exports and domestic demand. The overall contraction was the sharpest since the financial crisis and data for Q2 are likely to be even worse. Economic activity fell nearly 2% in the annual comparison and while official employment data for the first quarter suggest a roughly stable situation, monthly numbers have already indicated that this partly reflects a delay in the official statistic, with monthly jobless numbers spiking in April. The stats office warned that developments are also having an impact on the reliability of data, which means the data comes with a larger error margin than usual, although any revision is unlikely to change the main message that economic activity plunged thanks to Covid-19.

The wider EU data confirmed Eurozone Q1 GDP at -3.8% q/q, also as expected and in line with the preliminary release. The annual rate was revised marginally higher, to -3.2% from -3.3% y/y, although that doesn’t detract from the fact that the data highlights the extent of the economic contraction as a result of lockdowns across Europe. However, considering that virus measures only really came into effect in March it is already clear that Q2 numbers will look even worse and, looking further ahead, developments will not only depend on the extent of stimulus measures, but also on how the global economy copes with the virus and whether there will be a second wave. The central scenario remains for a rebound in 2021, but the balance of risk remains tilted to the downside.

EURUSD held near 1.0800 during the Asian session, and a softer Dollar and EU data in line with expectations saw the pair lift towards 1.0820 and the resistance of the 50hr moving average in the European session. Yesterday the pair printed an eight-day low at 1.0775. The H4 and Daily time frames remain negatively biased.

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Stuart Cowell

Head Market Analyst

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