Economy & Politics

The Corona slump is not as severe as originally expected

Chancellor Angela Merkel (CDU, r) receives the annual report from five economic experts Monika Schnitzer, Achim Truger, Lars Feld, Volker Wieland and Veronika Grimm. The handover of the annual report 2020/21 by the Expert Council for the assessment of economic development took place online.
Chancellor Angela Merkel (CDU, r) receives the annual report from five economic experts Monika Schnitzer, Achim Truger, Lars Feld, Volker Wieland and Veronika Grimm. The handover of the annual report 2020/21 by the Expert Council for the assessment of economic development took place online. dpa

The corona crisis and the second lockdown hit the German economy hard. The Expert Council for the Assessment of Macroeconomic Development forecasts a 5.1 percent decline in real gross domestic product for the current year. This calculation turns out to be optimistic in comparison to other forecasts, says Lars P. Feld, chairman of the expert council. This is due to the fact that the third quarter of 2020, “which was very dynamic”, was included in the forecast.

In the coming year, economists expect a slow recovery and growth of 3.7 percent. The renewed partial lockdown in November is already included in the calculations. “We anticipate that certain specific restrictions that restrict economic activity could apply throughout the winter half-year,” says Feld. Calculated over the year, according to Feld, these restrictions mean a discount of 0.2 percentage points in the current and the coming year. With a view to European policy, the Council of Economic Experts calls for a joint approach. It is important to emerge from the crisis together and as strengthened as possible.

Robust job market

Feld is optimistic about the labor market. The economic slump is currently only leading to minor changes there. Unemployment is expected to rise to 2.71 million this year and to 2.74 next year. The corresponding unemployment rates of 5.9 and 6.0 percent. These are “moderate effects of this very, very severe crisis. Basically, one can say: the labor market is robust ”.

The previous economic policy measures of the federal government are assessed as “relatively benevolent”, says Feld. The effect of the federal government’s economic stimulus package is between 0.7 and 1.3 percent for the gross domestic product. Feld advocates an expansion of the loss carry-back – “a lot can still be done here in terms of both time and amount”. The tax loss carry-back is a very targeted instrument and comparatively cheap for the public budget.

With a view to possible further economic impulses from the federal government, Monika Schnitzer, member of the expert council and professor for comparative economic research, points out that not all of the previously launched aid measures have been exhausted. The problem is also that there is currently no possibility to consume. You couldn’t go to a restaurant or go on vacation. “An economic stimulus package won’t help either”.

It is therefore important now to help those economic sectors that are most affected by the current “lockdown light”. That is happening now, the Council does not see further measures as urgent. The economists’ committee is against an extension of the VAT cut, as the effect comes from a pull-forward effect, said Feld.

Desire for old behavior patterns

“It is absolutely clear that a crisis always brings about a certain structural adjustment in the economy,” says Feld, referring to the consequences of the corona crisis for companies. Some companies that “barely got through” economically before the crisis would disappear from the market, he predicts. However, Feld is optimistic about the gastronomy and tourism sectors that are currently particularly affected. “People look forward to being able to go out again, to go to the restaurant or to be able to fly on vacation,” says Feld. There is a great desire to return to old behavior. There will be certain changes – “but not in such a way that entire industries can no longer continue”.

The aviation industry will also be smaller in the foreseeable future, predicts Schnitzer. And buying behavior has shifted in favor of online trading. “In part, this is a structural change that was already evident before the crisis, and in part it is exacerbated by the crisis,” says the economist. “These industries will have to change, and the business model will also have to change.” But that is not just a problem, but also an opportunity. Because in the crisis there is also a digitization boom and new business models that can be expanded. “Every crisis brings changes. Some business models are now being scaled back, some are being expanded. “


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