Economy & Politics

Column Upswing 2021: What else could go wrong?

Holger SchmiedingGetty Images

The outlook for a new year has seldom been as promising as it is today. Troublemaker Trump leaves the White House on January 20. The corona virus remains highly dangerous, as the new mutation in Great Britain shows once again. But the list of vaccines that could be approved within the next few months, some of which are already, is growing. This suggests that in the course of the coming year mankind could manage to get the pandemic under control to such an extent that it hardly has to burden the economy from spring onwards.

In 2021, the end of the two extraordinary shocks that have caused severe damage to the global economy in recent years is now in sight. The new US President Joe Biden is not a free trader. But he wants to work closely with allies like the European Union, Canada and Japan instead of covering them with threats. This should eliminate the risk of a trade war between the world’s two largest economic areas, the USA and the European Union. For world trade, this is the best news in more than four years.

Germany has less potential to catch up

For 2021, we expect growth of around 5% each for the euro zone and the USA. The fact that Germany is likely to lag behind with around 4.4% is mainly due to the fact that it was not shaken quite as hard in 2020 as other European countries and therefore has less catching up potential. In addition, the fiscal stimulus is nowhere near as pronounced as in the USA, which after a deficit in the national budget of around 16% of its economic output in 2020 is likely to want to afford another horrific deficit of around 11.5% in the coming year.

However, especially after the shocks of the past few years, we must continue to watch out for the risks that could permanently disrupt our positive outlook for the new year. In addition to the considerable dangers that the pandemic continues to pose, from today’s perspective there are primarily five risks.

Second wave damage less pronounced

Firstly, we are counting on households and companies to be ready to spend more quickly after the second wave of the pandemic has subsided, as well as after the end of the first wave. If, on the other hand, they are so shocked by the renewed setback in the wake of the second wave of the pandemic that they then hold back on consumption and investment for a long time, overall economic demand would only be able to recover slowly. However, since the economic damage of the second wave is likely to be far less pronounced than that of the first wave, we consider it unlikely that the business climate and consumer confidence will be more severely and more sustainably affected than after the first wave of Case was.

Second, it is at least conceivable that the dark winter of the economy could be followed by such a pronounced wave of bankruptcies and such a sharp rise in unemployment that this could seriously affect the confidence of households and companies in the future. However, economic policymakers are very aware of these risks. Even if more insolvencies are permitted again in Germany and Europe in 2021, government aid for companies and the labor market should remain extensive enough to prevent a sudden rise in corporate bankruptcies and unemployment.


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