[ad_1]
The German economy will suffer more from the consequences of the Crown crisis than previously assumed. The main economic research institutes revised down their previous forecast.
The Crown crisis is hitting the German economy harder than it was supposed to in the spring. In their fall report, the leading economic research institutes revise their forecasts for this year and next by a good percentage point lower.
They now expect gross domestic product to decline 5.4 percent in 2020 and rise 4.7 percent in 2021. In April, economists had forecast in their spring report that economic output would contract 4.2 percent during year-round and would grow 5.8 percent next year.
By 2022, they now forecast that economic output will increase by 2.7 percent.
Gastronomy and tourism slow recovery
The reason for the more pessimistic benchmarking is that the institutes now estimate that the further recovery process will be somewhat weaker than in the spring. “A good part of the fall of spring has already recovered, but the remaining recovery process represents the most arduous journey back to normalcy,” said Stefan Kooths, economic director of the Institute for World Economics in Kiel.
The recovery is slowing, on the one hand, by those sectors that depend especially on social contacts, such as restaurants and tourism, the event industry or air transport. “This part of the German economy will suffer from the corona pandemic for a long time and will only participate in the recovery process when protection measures against infection are largely bypassed, which we do not expect until the next half of summer,” Kooths said.
On the other hand, companies’ reluctance to invest is holding back the rally because their equity positions have deteriorated in many cases as a result of the crisis.
Exports plummeted
The recovery is largely due to exports, which collapsed particularly drastically during the crisis. The pre-crisis level of economic production is not expected to be reached until the end of 2021. Economic production is then 2.5 percent below the level that could have been achieved without the pandemic. The German economy should not return to normal capacity until the end of 2022.
“Once the recession has recovered, the consequences of the crisis are not over. In the medium term, production capacities are also likely to be a good percentage lower than pre-crisis estimates,” Kooths said. “However, the corona effect on production potential is still very uncertain, because it is currently difficult to predict what long-term damage the crisis will cause and how economic and political reactions will work.”
Deep brands in the labor market
The crisis in the crown also showed clear marks on the labor market. Despite the massive short-time work, an estimated 820,000 jobs were lost by mid-year. Since then, the number of people employed has risen slightly again, but the pre-crisis level will not be reached until mid-2022. The unemployment rate is likely to rise to 5.9 percent this year and next and decline slightly to 5.5 percent in 2022.
Economic stimulus programs, together with automatic stabilizers, have helped private household disposable income generally remain relatively stable, even in the acute phase of the crisis. At the same time, this means that the general public budget will close the current year with a record deficit of € 183 billion.
The uncertainty remains
The uncertain course of the pandemic remains the greatest risk to the prognosis. The institutes assume that infection control measures can be strangled over the course of the next summer semester to such an extent that they no longer significantly hurt economic activity. It is also uncertain to what extent corporate insolvencies will continue to occur in Germany and abroad. Several trade disputes continue to rage.
However, if private saving, which has increased significantly in the meantime, were increasingly translated into additional purchases, consumption-related sectors of the economy could be more stimulated than is assumed in this forecast.
The so-called joint diagnosis of the institutes is prepared twice a year on behalf of the Federal Ministry of Economy, in spring and in autumn. In addition to IfW, the German Institute for Economic Research (DIW), the Leibniz Institute for Economic Research in Halle (IWH) and Essen (RWI) and the Ifo Institute in Munich participate.
