BERLIN (Reuters) - The International Monetary Fund said on Wednesday that Germany navigated the first wave of the COVID-19 pandemic well, thanks to Berlin’s strong response, but a second wave of infections is darkening the growth outlook for Europe’s largest economy.
“While the economy began to rebound in the third quarter, the outlook has weakened in the face of a new wave of infections, and downside risks loom large,” the IMF said in its latest Germany report.
The Washington-based international lender applauded Chancellor Angela Merkel’s government for its “early and vigorous” policy response, which it said helped contain the economic contraction to a level well below that of other large European countries.
The German economy contracted by a record 9.8% in the second quarter, then rebounded by a better-than-expected 8.2% in the three months from July through September.
The government has since March rolled out an unprecedented array of job-protection measures, liquidity aid for companies, stimulus measures and long-term investment plans.
Finance Minister Olaf Scholz is planning to borrow more than a total of 300 billion euros this year and next - a fiscal splurge for which parliament suspended constitutional debt limits.
The IMF suggested that Berlin should continue its policies to set the economy on a sustained recovery path by shielding the labour market and ensuring that viable firms remain in business.
“Overall, the German economy is projected to contract by about 5.5 percent in 2020, with only a partial recovery in 2021,” the IMF said.
A failure to bring new infections under control could necessitate stricter and longer-lasting lockdowns, which would create substantial risks to the outlook, it warned.
Other risks, such as a no-deal Brexit and a re-escalation of trade tensions, could also weigh on Germany’s trade-oriented economy, the IMF added.
Reporting by Michael Nienaber, editing by Larry King
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