The ifo Institute expects the German economy to emerge from the coronavirus valley. Following the massive decline in economic output in the first half of 2020, economic experts are now expecting more growth again.
1 July 2020
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The coronavirus pandemic and the measures taken to contain it have plunged the German economy into by far the deepest recession in its post-war history. However, based on a number of assumptions about the further course of the pandemic and the speed and duration of the economic recovery, the ifo Institute expects the German economy to emerge from the coronavirus valley.
The Gross domestic product is likely to have shrunk by an estimated 11.9 per cent in the second quarter of 2020 after a decline of 2.2 per cent in the first quarter. As a result of the significant drop in the number of new infections, the lockdown measures have now been eased or lifted completely for some sectors of the economy. This is considered safe, that the economic downturn has been halted and the recovery in economic activity began. „From now on, things will gradually pick up again,“ says ifo head of economic research Timo Wollmershäuser on the occasion of the ifo Economic Forecast Summer 2020.
Due to the low production of goods and services during the shutdown, growth rates were strong at 6.9 per cent and 3.8 per cent in the third and fourth quarters. Nevertheless, the Economic output expected to be 6.7 per cent lower on average this year In the coming year, gross domestic product should then grow again by 6.4 per cent.
(Image: ifo Institute)
„All forecasts are currently subject to great uncertainty, as they are based on assumptions about the further course of the pandemic and the political reactions to it. We cannot expect to return to the old growth path any time soon, as if the crisis had never happened. We assume that economic output will not return to 2019 levels until the end of 2021.“ Clemens Fuest, ifo President.
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Corona crisis leaves deep marks on the labour market
The annual average number of people in employment this year is likely to be around 450,000 below the previous year's figure. At the same time, the Number of unemployed by an average of around 430,000 to 2.7 million. The peak in the third quarter of 2020 is likely to be around 3 million unemployed.
According to the ifo Institute is likely to be the second half of 2020, private consumptionStabilise again, as in particular the temporary VAT reduction provides positive impetus. The poorer income situation of private households due to short-time working and unemployment could initially have a dampening effect here. This means that consumer spending will not yet return to pre-crisis levels in the coming year.
Slump in corporate investment
Corporate investment is expected to slump by 10.8 per cent this year compared to the previous year; in particular, the Investments in machinery, equipment and vehicles are likely to be massively reduced are expected. A high level of uncertainty and a sharp drop in corporate profits stand in the way of an overly strong recovery, even if demand for capital goods is likely to increase again as the global economy picks up.
The traces of the coronavirus crisis will be clearly visible in the national budget: The balance of income and expenditure will slip from plus 50.4 billion euros last year to minus 175.8 billion euros this year. In addition to the economic slump, this is primarily due to the Corona aid package and the economic stimulus package which alone cost over 160 billion euros. In the coming year, the state budget will remain in the red at minus 76.5 billion euros.
German economy - things are looking up again
(Image: ifo Institute)
„The slump is the sharpest decline measured in Germany since the beginning of the quarterly accounts in 1970. It is more than twice as big as the one during the global financial crisis in the first quarter of 2009.“ Timo Wollmershäuser, ifo economic director.
Nevertheless continue the recovery in the coming year. The output gap should gradually close as the recovery progresses and average -1.1 per cent for the year. This means that the German economy will remain underutilised in the coming year. The forecast takes into account the fact that the production capacities determined as part of the potential estimate will be underutilised in the coming year as a result of increasing corporate insolvencies around 2 per cent or a good EUR 60 billion lower than the last estimate before the outbreak of the coronavirus crisis in December 2019.
Strong impetus from financial policy
The financial policy framework conditions are largely characterised by the government packages of measures adopted in the course of the coronavirus crisis. For example, the coronavirus aid package from spring will in itself lead to an expansionary stimulus of more than € 77 billion in the current year. The economic stimulus package adopted in June will increase the fiscal stimulus by a further € 87 billion. In addition, the other fiscal policy measures will only increase the expansionary stimulus by a further EUR 26 billion. All in all, this results in a Significantly expansive fiscal stimulus totalling over EUR 190 billion for the year 2020.
