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German economy grows at record pace before second wave of pandemic

10/30/2020 | 05:14am EST
Outbreak of the coronavirus disease (COVID-19) near Frankfurt

BERLIN (Reuters) - The German economy grew by a record 8.2% in the third quarter as higher consumer spending and exports helped Europe's largest economy to recover partly from its worst-ever recession caused by the COVID-19 pandemic, data showed on Friday.

The jump in output from July to September was the biggest since the Federal Statistic Office began collecting quarterly growth data in 1970 and was stronger than the 7.3% increase predicted by economists in a Reuters poll.

The jump followed an unprecedented plunge of nearly 10% in the second quarter, when household spending, company investments and trade collapsed during the first wave of the pandemic.

"The deeper you push a ball under water, the higher it jumps out of it. That also applies to the economy," DekaBank analyst Andreas Scheuerle said.

An aggressive second wave of infections and a new partial lockdown to slow down the spread of the disease are now clouding the growth outlook for the fourth quarter and beyond.

The bigger-than-expected rebound in the third quarter was driven by higher private consumption, rebounding investments in equipment and strong exports, the statistics office said.

The preliminary data did not include a lot of details, but car companies and engineering associations have pointed to surprisingly strong demand from China in recent months.

Separately, the German government on Friday revised upwards its estimate for gross domestic product this year. It now expects GDP to shrink by 5.5% in 2020 compared with a previous estimate for a 5.8% decline. Adjusted for calendar effects, it sees the economy shrinking by 5.9%.

The government confirmed its 2021 forecast for the economy to grow by 4.4% despite the second wave of infections and the partial lockdown. Bars, restaurants, cinemas and gyms will close from Monday until end of November. Schools and shops will stay open under certain conditions.

The government is planning to compensate companies affected by the lockdown by paying them up to 75% of their sales from last year's November. Finance Minister Olaf Scholz has earmarked 10 billion euros for this new aid package.

The government has since March unleashed massive rescue and stimulus measures, including cash handouts for parents and a temporary value-added tax cut that together seem to have stabilized domestic demand.

But in a sign that some consumers are holding back despite relatively stable employment and income, retail sales fell more than expected on the month in September, separate data showed.

Compared with February, the month before the coronavirus outbreak in Germany, retail sales in September were 2.8% higher.

(Reporting by Michael Nienaber; editing by Thomas Seythal, Maria Sheahan, Larry King)

By Michael Nienaber

© Reuters 2020
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