Economy & Politics

Economic experts expect economic recovery from summer

German exports in particular had recently suffered from the consequences of the corona pandemic. With the easing, the recovery gradually begins, predicts the Council of Experts
German exports in particular had recently suffered from the consequences of the corona pandemic. With the easing, the recovery gradually beginsPixabay

The Council of Experts for the Assessment of Macroeconomic Development has updated its economic forecast for 2020. In March the Federal Government’s advisory committee had still assumed a decline in gross domestic product of between 2.8 percent in the best and 5.4 percent in the worst case, so-called “economic practices” now expect economic output to decrease by 6.5 percent.

“The corona pandemic is expected to cause the biggest slump in the German economy since the Federal Republic was founded,” said Lars P. Feld, chairman of the expert council. “However, we expect recovery to start in summer.” The committee expects an increase of 4.9 percent for the coming year.

The economy follows a V-scenario. However, the low point of economic development is still lower than expected. The main reasons for the correction:

  • The latest indicators show much greater economic damage than expected.
  • The easing of the corona measures took place later than expected and some of them continue in the summer.
  • The effects of the crisis abroad had a noticeable impact on German exporters.

In the euro area, the Council of Experts expects GDP to decline by 8.5 percent. For France, Spain and Italy, the forecasts for economic performance are even worse. The three countries were particularly hard hit by the pandemic and economic consequences in the Corona crisis. For France, the committee expects a decrease of 11 percent, for Spain with a decrease of 11.5 percent and for Italy with a decrease of 11.8 percent.

Recovery from summer – just not for the job market

In Germany, the balance for the second quarter is likely to be sobering due to the lockdown and the associated consequences for the economy. The Council of Experts anticipates a seasonally adjusted minus of twelve percent for economic output. For comparison: In Spain, Italy and France, the economy will probably shrink by 15 percent in the second quarter.

There is also no sign of relaxation in the labor market. Instead, the need for workers in companies continues to decline. For the current year, the Council of Experts expects 2.72 million unemployed – almost 500,000 more than in 2019. A similar trend is evident in the euro area, where unemployment will increase. “The positive labor market trend of the past few years will come to an end for the time being,” says the report.

A slow recovery is expected from the second half of the year. The development in the euro area could also be influenced by domestic tourism, which is particularly important for some member states. By contrast, the economy is likely to grow again in 2021 – by 4.9 percent in Germany and 6.2 percent in the euro area. The economy could return to pre-crisis levels in 2022 at the earliest.

WTO cautiously optimistic

The World Trade Organization (WTO) is a little more optimistic in its economic forecast than it was in spring. WTO chief Roberto Azevedo spoke of a silver lining on the horizon in view of increasing freight flights and the handling of containers. The large stimulus packages and quick reactions from many governments have made a pessimistic scenario for 2020 unlikely, the organization said.

According to a new forecast by the World Trade Organization, the recovery could start earlier this year than expected. According to this, world trade could “only” shrink by 13 percent in an optimistic scenario. If things go worse, the volume of global trade could also decline by 32 percent.

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