2020.07.2715:56:00UTC+00Bundesbank Sees German Economic Recovery Continuing In H2 Supported By Stimulus

Germany's economy shrank at a record pace in the second quarter, but recent indicators suggest activity increased significantly in recent weeks and the recovery is likely to continue in the second half of the year supported by the fiscal stimulus, Bundesbank said in its monthly report on Monday.

"The Bundesbank assumes that the economic recovery will continue in the second half of the year," the report said.

"The recent economic stimulus package should also contribute to this."

Despite some rebound, the manufacturing situation remained bleak in June, especially in automobile industry where production almost stopped in May.

The retail industry was able to recover somewhat in May after relaxation of coronaviurs, or Covid-19, containment measures.

The slump in exports in April and May was very widespread. However, exports to China only shrank slightly as the economy began opening up earlier than others.

Employment dropped significantly and unemployment grew markedly during the second quarter. The number of people employed in short-time work grew at a record pace.

Bundesbank expects negative inflation rates from July due to the temporary lowering of VAT rates in the second half of 2020.

"With the withdrawal of the VAT reduction in January 2021, the rates should turn out to be visibly positive again," the bank said.