The economy posted a deficit of 3.2 percent of Gross Domestic Product in the six months to June, according to Germany's statistics agency Destatis, above the 3.0 percent limit under EU rules that Brussels suspended due to the pandemic.

In the same period of 2019, Germany recorded a public surplus of 2.7 percent of GDP, or around €46.5 billion.

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Destatis revised upwards the GDP estimate for the three months to the end of June to show a contraction of 9.7 percent, better than the initially reported 10.1 percent slump.

It is still “the sharpest decline since quarterly GDP calculations for Germany began in 1970,” the agency said, worse than at the height of the financial crash, when GDP fell 4.7 percent in the first quarter of 2009.

For the first time since 2010, state revenue was down year-on-year, Destatis said, while government spending soared 9.3 percent as it tried to support the economy.

Last week, Finance Minister Olaf Scholz said that Germany will take on yet more debt in 2021 to lessen the impact of the pandemic, forcing it to suspend its cherished policy of keeping a balanced budget.

Scholz previously said Germany planned to borrow around €218 billion in 2020 to help pay for a huge rescue package to steer the country through the coronavirus-induced downturn.

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'Road to recovery'

The German economy is expected to see a sharp recovery in the third quarter of 2020 however, after the relaxation of pandemic restrictions allowed economic activity and public life to resume.

A key survey separately found that business morale improved again in August for the fourth consecutive month.

The Ifo institute said its monthly barometer rose to 92.6 points, from 90.4 points in July.

“The German economy is on the road to recovery,” Ifo President Clemens Fuest said.

The index had plummeted to a record low in April when Germany's coronavirus restrictions closed factories, restaurants and shops, before starting a rebound the following month as the economy gradually reopened.

“Today's Ifo index keeps the hopes for a V-shaped rebound alive,” ING Economist Carsten Brzeski said. “However, the fact that a rebound is not necessarily the same as a recovery will be the main theme of the coming months.