Germany to recover slowly after severe recession: Bundesbank

The Germany economy is in a severe recession and recovery is unlikely to be quick as many coronavirus-related restrictions could stay in place for an extended period, the Bundesbank said in a regular monthly economic report on Monday. With the country in virtual lockdown since mid-March due to the coronavirus, Europe's biggest economy has come to a standstill, even if discussions are now underway to ease some restrictions in the coming weeks.

"Substantial restrictions are likely to remain until a medical solution such as vaccination is available," the central bank said. "For this reason, a rapid and strong economic recovery currently seems unlikely." The International Monetary Fund expects the German economy to contract by 7.5% this year while private forecasts span a wide range, with all but a few showing a bigger recession than in 2009 when the economy shrank by more than 5%.

First-quarter figures were already severely impacted but the second quarter will be even worse, the Bundesbank said, pointing to a severe drop in car production and household consumption. "However, there is no fear that the German economy will get into a self-reinforcing downward spiral," it added, arguing that easy fiscal and monetary policies will support the recovery.

It also said that inflation -- the European Central Bank's primary objective -- is likely to decline sharply in the coming months as lower oil prices are quickly passed onto customers.