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The economy is not collapsing as badly as feared, so the expectations of the economy. But they also make it clear that this is a qualified forecast: the further development of the pandemic is decisive.
In view of the persistently critical Corona situation, the economy has warned of setbacks for the economy in Germany. The Council of Economic Experts raised its forecast for economic growth this year. Due to the increasing number of infections, experts still see many risks.
“The crisis of the crown has not yet been overcome,” said the chairman of the expert council, Lars Feld. “Due to the rapid increase in the number of infections, the economic situation remains fragile.” For further development, it is crucial how the pandemic can be contained and how the economy develops abroad.
The expert council delivered its annual report to Chancellor Angela Merkel at noon. According to economists, the federal government’s economic stimulus package should help the recovery. However, “it is not precisely targeted everywhere.” They also ask the federal government to carry out structural reforms. Deficits in digitization, health and education, as well as in public administration must be reduced rapidly.
The recession may not be as bad as feared
Due to a strong economic recovery in the third quarter, the economy now expects a decline in gross domestic product (GDP) of 5.1 percent for the current year. That would be roughly at the level of the collapse of the global financial crisis in 2009. In June, the Council had forecast a decline of 6.5 percent for 2020. The economy is currently slightly more optimistic than Economic Affairs Minister Peter Altmaier (CDU).
Finance Minister Olaf Scholz saw the Federal Government’s direction confirmed in the report. “Economic methods prove us right: determined aid policy is paying off,” said the SPD politician. With massive aid, the federal government managed to avoid a serious downward spiral.
Growth of 3.7 percent is expected by 2021
According to experts, the forecast takes into account the recent increase in the number of infections and the partial blockade of November. The Advisory Council assumes that the number of new infections can be kept under control with limited interventions, that an extensive shutdown is not necessary as in spring 2020, and that international supply chains will not be significantly affected. “Global economic output is expected to stagnate through the winter.”
The economy expects growth of 3.7 percent next year. However, this is also subject to a reservation: “If there are massive restrictions on economic activity similar to the ones in the spring, a stronger drop in economic output can be expected.” Next year’s GDP could be much lower than expected. Widespread shutdown and disrupted supply chains in the spring had caused the economy to collapse. However, from July to September, gross domestic product unexpectedly increased strongly, that is, by 8.2 percent compared to the previous quarter.
Is the crisis an opportunity?
The Council of Economic Experts also assumes that the pre-crisis level will not be reached again until early 2022 at the earliest. But the crisis could also be an opportunity, that is, for companies to drive digital change and increase their efforts for greater climate protection. However, this requires clear framework conditions, says Feld. One possibility is a reform of energy prices, removing the EEG surcharge to promote green electricity and reducing the electricity tax to the European minimum.
The five-person council of experts to assess macroeconomic development advises on policy. The experts are also known colloquially as the economic modes. In addition to Feld, the council also includes Veronika Grimm, Monika Schnitzer, Achim Truger, and Volker Wieland.
