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Forecasts for the German economy are more pessimistic than they have been for years. But in other European countries they arouse envy.
Federal Finance Minister Peter Altmaier predicts that gross domestic product will decline by 5.8 percent in 2020. Only by 5.8 percent. For the other major economies on the continent, things look much darker: Spain, Italy, Great Britain and probably France also have to be prepared for a double-digit disadvantage.
“Economic development in the large states of Europe is extremely heterogeneous,” says Gabriel Felbermayr, president of the Kiel Institute for the World Economy (IfW). So far, Germany has weathered the pandemic better than anyone else – both healthily and economically. That was already the case in spring when the first corona wave swept across Europe. In the second quarter, the worst for the world economy since World War II, the depression in this country was only half as deep as in Spain or Great Britain, for example.
And although these countries are still struggling hard with the fallout from the collapse of the crown, this country’s economy has recovered faster than expected. The atmosphere is encouraging: between companies and leading economists in the country.
“The persistent good domestic demand in Germany is helping the economy a lot,” explains Felbermayr. And the director of the Munich Ifo Institute Clemens Fuest: “Germany is one of the best among the major economies.”
Why is it so much better here than anywhere else?
1. Germany’s economy was healthier before Corona
“This crisis affected economies that were very unevenly stable,” says Felbermayr. Italy suffered decades of stagnation, Spain due to the euro crisis, Great Britain due to uncertainty about Brexit and France due to a permanent delay in reforms.
The German economy did not have such a serious structural problem. In almost ten years of boom, many companies were able to accumulate reserves. And at the beginning of the pandemic, numerous companies still had a large number of orders to process.
2. Politics didn’t have to slow down the economy like that
First Italy, then Spain, France and Great Britain. All of them were sometimes the focus of the pandemic: with more than 900 deaths a day. To stem the wave, the government of Rome and Madrid put much of their economies into artificial hibernation for weeks. London began the blockade later, but it lasted longer and caused even greater damage.
Germany did not hit the virus as hard and restrictions on companies were less. “Unlike France, for example, we did not have a total closure in Germany,” says Ifo boss Fuest. With the exception of the auto industry, many companies have more or less continued to operate. “
3. Germany’s industry is more resistant to viruses
France, Spain and Italy are among the most attractive and high-income vacation destinations in the world. The collapse of international tourism is dragging their economies further down. In Germany, the travel industry is not that important. This makes the industry even more important. And “travel restrictions are almost irrelevant for industrial products,” says Felbermayr. “World trade is doing surprisingly well; at first it is still one tenth below normal. Industrially strong countries benefit from this.” Like Poland, for example, where the recession is likely to be even weaker.
Germany’s exports are still significantly lower than a year ago. But “they have recovered surprisingly well,” says Ifo boss Fuest. “The German export industry is flexible: if things go wrong in one market, they open other markets, especially in Eastern Europe, for example.” Business with China is also recovering. Additionally, the German export industry has a wide range of products to offer, says Fuest. Automotive and mechanical engineering are currently weak, but exports in the pharmaceutical industry are increasing.
4. The federal government has more money to save
The German state has never been more generous than in this crisis. The short-time subsidy is extended and extended, medium-sized companies and the self-employed can apply for bridging aid, and to encourage consumers to buy, the federal and state governments waive part of the VAT. The UK government, on the other hand, is likely to expire its short-term work schedule at the end of the month, threatening hundreds of thousands of people with unemployment. State aid from Italy or Spain is also modest, compared to Berlin’s billions.
“Germany has put an incredible amount of money in their hands. There is no doubt that the state can resist,” says Felbermayr. If the federal government wants to borrow money on the capital market, it can even make a profit on it, because the interest rates on ten-year government bonds are negative; creditors are currently recovering about four percent less from the federal government than they have borrowed over the entire term. Germany’s mountain of debt will grow strongly due to the pandemic – according to Ifo, from nearly 60 percent to around 80 percent of annual economic output. But compared to France or Italy, it is still a low rate.
5. But it is far from good
Germany’s largest equity index, the Dax, has offset losses from the first wave of pandemics, Lufthansa has been spared for the time being, unemployment has only risen moderately and the number of bankrupt companies has even decreased. But stock markets fluctuate wildly, Germany’s largest airline may cut thousands of jobs, more than four million people are still working short-time, and experts fear a wave of bankruptcies as soon as companies that have been Over-indebted due to Corona have to report this again.
And what happens when the numbers of corona infection in this country skyrocket like in France, the Czech Republic or other neighboring countries? Or if the global stock markets collapse again?
The situation is fragile. And a small percentage is still missing for a real recovery. “We will not reach the old level of economic production again anytime soon,” says Ifo chief Fuest.
And IfW President Felbermayr is stunned by the overly optimistic mood: “It is difficult to understand why companies assess the economic situation as well as in August last year. The optimism in Germany is exaggerated.” Many companies appeared to be very positive in appearance. “But they hardly invest, it seems terrible, even in Germany.”
As long as trading partners like France, Italy, Great Britain and Spain are weak, the local export industry will also have a problem. Hopefully, Germany’s economy will dominate the crown crisis. But certainly not alone.
