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Despite massive state aid, the pandemic is hitting the German economy and labor market harder than was supposed in the spring. The federal government’s so-called economic practices corrected its forecast for this and next year by a good percentage point lower on Wednesday. Now they expect gross domestic product to decline by more than 5.4 percent this year, based on the same period last year. In the next year, the economy could grow 4.7 percent from a low, and then 2.7 percent in 2022. Experts write that the pre-crisis level of economic output will not be reached again until end of next year at the earliest.
This fall forecast is a joint effort of the leading German economic institutes. These include the DIW Berlin, Ifo Munich, IfW Kiel, IWH Halle and RWI Essen institutes. It is prepared twice a year on behalf of the Federal Ministry of the Economy.
Economic researchers cite two main reasons for the corrected forecast. The economic recovery is much slower than it was supposed in the spring. This is mainly because it is not known how severe the pandemic will be. Insecurity mainly affects service sectors that depend especially on social contacts, including restaurants and tourism, the event industry, but also air traffic. Many people do not use these services because they are concerned that they will be infected.
The second big reason for the poor performance is that companies are reluctant to invest. There is also uncertainty here, for example with regard to supply chains, but also to sales markets. Exports fell particularly markedly during the crisis, the experts write.
According to economic savants, the German economy is not likely to return to normal capacity until the end of 2022. With the economic downturn catching up, the fallout from the crisis is by no means over, said Stefan Kooths, chief economic officer of IfW Kiel. It is currently unclear what long-term damage the pandemic will cause and how the massive political aid measures will work.
Economists expect the unemployment rate to stabilize at 5.5 to just under 6 percent this year and next. Despite the huge short-term job, around 820,000 jobs were lost in the middle of the year, they write. Since then, the number of people employed has increased slightly again. The economic stimulus programs have contributed to the fact that the disposable income of private households has remained generally stable even in the acute crisis. Overall, government aid meant that Germany will close this year with a record deficit of € 183 billion. Economic experts assume that the German state will have to finance considerable deficits with 118 billion euros and 92 billion euros respectively in the next two years.
Experts emphasize that the greatest risk is the uncertain course of the pandemic. The basis for the forecast is that infection control measures may be suspended in the coming summer to such an extent that they no longer significantly harm economic development. Currently, it is difficult to predict how many companies would have to declare bankruptcy in this pandemic, both at home and abroad. On Tuesday, the Bundesbank announced that it expected a wave of bankruptcies in the first quarter of next year. It assumes that at least 6,000 companies in Germany could file for bankruptcy. He urged banks to prepare for this wave of bankruptcies.
There is also uncertainty due to latent trade disputes. Experts point out that the economic recovery could be better if bulging private savings flow more into consumption. Even before the pandemic, German economic growth was based in particular on the fact that private consumers were consuming more than in previous years.
