• The largest previous quarterly drop was a 4.7% tumble recorded in first quarter of 2009
  • On a year-over-year basis, the German economy slumped by 11.7%.
  • JPMorgan expects the German economy to contract by 4.3% this year

Germany, Europe’s largest economy, saw its gross domestic product plunge by 10.1% in the second quarter – the largest such quarter-over-quarter decline since record-keeping commenced in 1970, according to the Federal Statistical Office, or Destatis.

The drop was more than twice the size of the previous record – a 4.7% tumble in GDP recorded in first quarter of 2009, during the depths of the financial crisis.

On a year-over-year basis, the German economy slumped by 11.7%.

Destatis said the second quarter performance was marked by a collapse in exports and household spending in tandem with a jump in state spending.

"It's clear that it was a really horrible quarter for Germany," said Chelsey Dulaney of the Deutsche Welle broadcast group. "We saw declines basically across the entire economy."

Along with a plunging GDP, about 6.7 million German workers participated in a state-funded furlough program in May, up from 6.1 million in May.

Still, the unemployment rate remained 6.4% in July, unchanged from June.

But Carsten Brzeski, chief economist at ING Research, expects the German economy to rebound strongly in the third quarter.

“The worst quarter ever could be followed by the best quarter ever,” he wrote. “However, the rebound will be uneven. The domestic economy should benefit from fiscal stimulus in general and the [value-added tax] reduction in particular, thriving services and construction, as well as summer vacations at home instead of abroad. At the same time, however, the manufacturing sector will take much longer to recover, given the disruption of global supply chains, economic weakness in major trading partners and continuing structural change, which had already hampered production prior to COVID-19.”

Brzeski added that Thursday’s GDP data marked the “trough of the crisis.”

“As with any horrible ride, there is a strong feeling of relief that the worst is over,” he wrote. “Compared with the last few months, the coming weeks could actually feel like a joy ride. However, this crisis will have longer-term implications and potentially some surprises up its sleeve. It's going to be a long ride.”

Analysts at JPMorgan expect the German economy to contract by 4.3% this year, a more modest figure than most other European states. (In contrast, the European Commission expects the GDP of France, Italy and Spain to each shrink by more than 10% this year.)

“Germany should benefit from more generous fiscal support than elsewhere in the coming months, its low [virus] infection rate and strong public health system, and limited dependence on foreign tourists,” said Andrew Kenningham, chief Europe economist at Capital Economics in London.