German GDP Preview: Why expecting the worst since 2009 may be optimistic, EUR/USD implications

  • Germany is expected to report a squeeze of 2.2% in economic output in the first quarter.
  • Dependence on China and eurozone figures point to a more substantial drop in activity. 
  • EUR/USD, already falling amid dollar strength, may extend its falls.

Germany is having a "good crisis" – suffering a low mortality rate in comparison to other large European countries and the rest of the world. Elevated testing capacity and sound leadership do not mean the economy has not suffered. Economists expect the old continent's largest economy to report a fall of 2.2% in Gross Domestic Product in the first quarter of 2020, the worst since Q1 2009 – the worst of the financial crisis.

However, there are several reasons to believe it could be worse. Preliminary eurozone GDP figures have shown a plunge of 3.8% 

Chancellor Angela Merkel ordered schools and nurseries to close on March 13, while Italy was already in full lockdown but Spain was only on its way to doing so. It announced a national curfew on March 22, several days after France and Spain.

The small difference in days is insufficient to explain the upgraded expectations. 

Another reason to project the worse outcome is Germany's dependency on exports to China. The world's largest economy hunkered down on January 23. While China's measures were not uniform across the country, business activity in Europe's "locomotive" probably suffered already suffered before March. 

EUR/USD implications

Euro/dollar has been leaning lower, and this trend may extend if Germany's GDP misses expectations. Jerome Powell, Chairman of the Federal Reserve, dismissed the idea of negative interest rates, disappointing some investors that had already briefly priced in such a move. 

Moreover, fears of a second wave of infections – in the US, in Germany, and elsewhere – has kept the greenback bid. The mix of weak eurozone data and a stronger dollar could push EUR/USD lower.

However, there are other scenarios to consider. If German GDP meets expectations, it would be encouraging for the euro area, as the largest country would have posted better figures than other large economies and the bloc at large. Nevertheless, USD strength will likely prevent EUR/USD from advancing.

The currency pair has room to rise only in the unlikely scenario of an upside beat, preferably contraction of less than 2%. A surprising outcome – albeit being temporary ahead of a horrible second quarter – would boost EUR/USD, at least temporarily.


Initial German GDP figures for the second quarter will likely show a considerable drop in output due to the coronavirus crisis. Projections seem too optimistic when looking at other European countries and China's impact. Alongside some dollar strength, the currency pair has more room to drop than rising. 


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD hits fresh one-month low amid souring market mood

EUR/USD has been extending its falls and dips below 1.21 as US retail sales badly disappointed and the worsening mood is supporting the safe-haven dollar. Markets digest Biden's stimulus plan. US Consumer Sentiment declined to 59.2 points. 


GBP/USD retreats toward 1.36 amid fresh dollar strength

GBP/US has pared its gains and falls toward 1.36 as the dollar gains ground. The UK economy shrank by 2.6% in November, better than estimated. The UK is ramping up its vaccination campaign and PM Johnson is pressured to ease the lockdown. 


Gold extends sideways grind near $1,850

The XAU/USD pair registered small daily gains on Thursday but struggled to extend its recovery amid a lack of significant fundamental drivers on Friday. As of writing, the pair was up 0.15% on a daily basis at $1,849.

Gold news

Forex Today: Markets “sell the fact” on Biden's stimulus, dollar rises, retail sales eyed

Markets are on the back foot after Biden hinted about tax hikes while introducing stimulus. The safe-haven dollar is edging higher despite Powell's pledge to keep monetary policy accommodative. 

Read more

DXY breaks above key downtrend, eyes move above 91.00

USD has been strongly supported on what has shaped up to be a very much risk off final trading day of the week. Most G10/USD pairs have seen significant weakness, aside from CHF/USD and JPY/USD, given that the two currencies are also considered “safe havens”.

US Dollar Index News

Forex Majors