Economy & Politics explains what the second lockdown means for the economy

Catering establishments have to close again for a month.imago images / tagesspiegel

Private consumption is being influenced by the Corona crisis, and buying behavior is changing. People tend to be frugal in crisis situations. How does this affect December, when more people usually buy because of Christmas?

For the time being, consumption will decline. Because in a lockdown situation, people generally prefer to save more because they are insecure. You cannot really estimate what will happen after the lockdown light. The opportunities to spend money have also decreased: pubs, restaurants and theaters are closed, events have been canceled. Nevertheless, the Christmas business will probably not be canceled. The big goal of the partial lockdown is that people can celebrate Christmas at least a little bit together. But instead of buying from stationary retail in the city centers, consumers will tend to switch to online shopping. This trend has already been evident in the last few months. Economic researchers also see it this way: According to their forecasts, private consumer spending at all levels will only rise again in the following years. Now people are saving. And not just for the period of the partial lockdown, but as long as the corona pandemic is acute. The sooner an end is in sight, the sooner people will spend money again – this will lead to a kind of catch-up effect.

The companies such as restaurants or theaters have developed hygiene concepts in the last few months. Now they are closed again. So was that free?

The lockdown light is not to be equated with the general corona measures. These won’t be over in December. The companies will therefore have to continue to implement their hygiene concepts. Fortunately, the sectors currently affected by the partial lockdown only account for a small part of Germany’s economic output. Retail, for example, is also restricted, but not like it was during the first lockdown. The shops are still open. That means, there won’t be as big a break in here as in spring. Industry is more important for overall economic performance. Most can continue to work there. And in office jobs, where many work at home anyway.

Relief measures remain in place

Many, especially smaller companies, no longer have a financial buffer to survive a second lockdown. What are the new relief measures like?

Smaller companies with fewer than 50 employees can get 75 percent of last year’s sales. These are generous grants that will likely help many businesses and the self-employed. Otherwise, some relief measures will remain in place. These are the bridging aids that can largely cover a company’s fixed costs. On the other hand, short-time working was extended. Companies can apply for KfW loans, and those who are briefly overindebted do not have to file for bankruptcy by the end of the year. This will not help everyone, but most of them, to survive the crisis.

Can the lockdown light also do something positive to stimulate the economy?

Of course, the drastic restrictions mean that the economy suffers. Those who live in a Corona hotspot are probably less likely to go to the city’s open shops, even if it is allowed. There is a lot of uncertainty here. So that has negative effects. In the long run, however, a lockdown will help the crisis pass more quickly. The number of infections is falling and that is a positive effect. The faster that happens, the sooner companies will invest again and people will go shopping. In the end, that helps everyone.

Sustainable economic damage

When will the economy be back to pre-corona levels?

Forecasts by economic research institutes had predicted lower growth before the partial lockdown was passed because the corona situation had worsened. The last forecast came from the federal government at the end of October. Accordingly, there would be a slump in gross domestic product of 5.5 percent in 2020, followed by an increase in GDP of 4.4 percent in 2021. That is a worse forecast than many made in the summer, but in view of the increasing number of infections, it’s no wonder. The economic research institutes estimated that we would be back to pre-crisis levels by the end of next year. But we also have to remember that GDP would have continued to rise without the crisis. This means that when we have reached the pre-crisis level at the end of 2021, economic output will still be 2.5 percent below the value that it would have reached without the Corona crisis. How things go after that depends on the catch-up effects. Even if consumption could rise sharply in 2021 and 2022, it cannot be assumed that overall economic output will also increase as strongly. Because some investments simply failed to materialize, companies have less money overall due to the crisis. In this sense, the crisis has caused lasting economic damage.

Do you already know ours Newsletter “The Week”? In your mailbox every Friday – if you want. Here you can sign up


Related Articles

Back to top button