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Bundesbank Says Covid-19 Pushed German Economy Into Severe Recession

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The coronavirus outbreak and the subsequent containment measures have plunged the German economy into a severe recession and an immediate recovery is unlikely, the Bundesbank said in its monthly report released on Monday.

"How big the decline in overall economic activity will ultimately be is currently difficult to predict," the central bank said.

"Ultimately, the severity of the recession would largely depend on when and to what extent the restrictions introduced to combat the pandemic could be further relaxed," the Bundesbank said.

The lockdown caused activity in some consumer-related service sectors such as catering, travel, leisure and culture, textile sales, passenger transport, to stop from mid-March.

This could have led to an over 1 percent decline in the GDP in the first quarter, the Bundesbank said.

The strain on the economy also reflected in the labor market and the number of advertisement for temporary work exploded in March, the report noted.

Bundesbank's experts reckoned that the number of short-time workers likely grew to over a million in April.

The slump caused by the coronavirus, or Covid-19, pandemic is much worse than the global financial crisis of 2008-09 as more sectors are involved. The number of employees who are potentially entitled to social security contributions would be six million higher now, the bank said.

Germany, which has the biggest economy in the euro area, has extended its lockdown until May 3, but has announced some cautious easing in some sectors.

As substantial restrictions are likely to remain until a medical solution is found for the Covid-19 disease. Hence, the Bundesbank said a rapid and strong economic recovery currently seems unlikely.

"It also plays a role in how quickly consumers and companies normalize their behaviour after the easing," the bank added. The recovery will also depend on the situation in the main trading partners of Germany.

That said, experts do not expect a self-reinforcing downward spiral for the German economy, the report said, thanks to the robust social security system and monetary and fiscal stimulus measures.

Bundesbank expects the inflation rate to decline sharply in coming months as the low crude oil prices will gradually be passed on to consumers.

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