The German economy is positive about the prospects of recovery

by Thorsten Koch

Federal Minister of Economics Altmaier would like to implement targeted measures against the Corona pandemic instead of implementing comprehensive, all-round measures. Altmaier wants to prevent a second lockdown, he pointed out in an interview. Employer President Kramer also spoke out against another lockdown. Regional reactions are necessary, which are to be limited in time. In addition to quarantine, one could talk about temporary closings, he said.

Like politics, leading economists showed concern for the economic recovery. “A second wave could be economically more damaging than the first wave. Because many companies are ailing, have high debts and hardly any more reserves,” commented the President of the German Institute for Economic Research, Fratzscher. The director of the Institute of German Economy, Hüther, called for regional answers to the infection process.

End of the downturn possible from October

Altmaier assumes that an end to the temporary downturn in the German economy will be possible in autumn – before the end of the pandemic. This means that the German economy could grow again by October, at the latest. Nevertheless, the volume of the economy will be 6 percent lower in 2020 than in 2019. In 2021, according to Altmaier, growth of 5 percent should almost compensate for the downturn. With regard to the development of the labor market, the Federal Minister of Economics expects a relaxation from November. By that time, a decline in the number of unemployed can be expected. By 2022, the goal is to return to the level of employment from before the Corona crisis. According to Altmaier, the federal ‘bridging aid’ of over 25 billion Euros, which medium-sized companies can apply for, will help many companies to get through these difficult times.

The German Institute for Economic Research also expects the economy to recover. According to DIW President Fratzscher, 3 percent growth is expected as early as the third quarter of 2020. It’s going uphill again. In the fourth quarter, however, certain problems could arise if companies that have not yet had to file for bankruptcy could then face payment difficulties. Fratzscher hopes that not too many a number of large companies will be affected. The head of economic management, Feld, however, is more cautious and warned against too much euphoria. The road out of the recession is still a long one. The economic development also depends largely on the infection process. “What makes me think is the tougher measures for example in Switzerland, Austria, and in France, where the openings have partially been withdrawn,” said Feld worried.

Deutsche Bank expects the economic downturn to be less than initially feared due to the ongoing pandemic. The gross domestic product (GDP) in the entire Euro Zone is likely to shrink by only 8.6 percent in 2020 compared to 2019 instead of up to 12 percent. In the current year, economic output could reach 90 percent of the pre-crisis level. In the second half of 2021 at the latest, growth will increase again by around 4.6 percent in the Euro Zone. However, this is already priced in at the index level by the markets.

The adjusted GDP in the second quarter of 2020 was 10.1 percent lower than in the first quarter and, compared to the second quarter of 2019, by 11.7 percent lower. According to the Federal Statistical Office, the decline was stronger than in 2009. Both exports and imports fell in the second quarter of 2020, as did private consumption and investments in equipment, while the state increased its consumer spending.

Employer President Kramer showed optimism: “The German economy will gradually cope with the pandemic. It is already looking up again.” At five to ten percent, growth in 2021 “can be as strong as the minus predicted for this year. And by 2022 at the latest, the German economy will be as good as it was before the crisis,” said Kramer. DGB boss Hoffmann also sees no reason to panic: “We have seen very clever crisis management in the past few months – from the government as well as from employers and unions. I am sure that the economy will pick up speed again in 2021.”

The Corona crisis threatens the German retail trade with a major slump. The Association of Retailers therefore asked customers to exercise discipline and a sense of responsibility to adhere to the hygiene and distance rules. “It fills me with great anxiety that many people are apparently not so strict about adhering to the rules and the number of infected people is rising again,” said Retail President Sanktjohanser. “Let’s not destroy what we have achieved.” In the event of a second lockdown, which politicians are willing to prevent, numerous retail companies would face major problems. The crisis will cost companies outside the grocery trade around 40 billion Euros. A customer spent about 10 percent less on their purchases from March to May. While department stores and textile companies made less income, mail order and internet sales also boomed in May.

Industry clearly in the plus again

In the industrial sector, orders rose by 27.9 percent in June compared to May, announced the Federal Statistical Office. Already in May, there was an increase of 10.4 percent after slumps in March and April. Nevertheless, incoming orders in June 2020 were still 11.3 percent below the level of the same month last year. Domestic orders rose particularly strongly in June by 25.3 percent compared to the previous month. Orders from abroad were 22 percent higher. According to the Federal Ministry of Economics, incoming orders have reached a level of 90.7 percent of what was recorded before the outbreak of the Corona pandemic. This is a “big step forward” for the manufacturing industry. The recovery process will now proceed slowly.

According to the Federal Statistical Office, exports rose by 14.9 percent in June compared to the previous month, which, according to a survey by the Ifo Institute, has made the industry somewhat optimistic. It is an increase that has not been seen since 1990, i.e. for 30 years. The companies delivered goods worth 96.1 billion Euros in foreign trade, albeit in a 9.4 percent lower volume than in June 2019. In June 2020, the industrial companies manufactured around 11 percent more products than in the previous month. Exports to China rose 15.4 percent year-over-year, while exports to the US were almost 21 percent lower. 16 percent less was delivered to Great Britain. German imports rose in June by 7 percent compared to the previous month, but this means a decrease of 10 percent compared to the same period of the previous year, to 80.5 billion Euros. Overall, the EU Commission is forecasting a decline in German GDP of 6.3 percent. For 2020 as a whole, the German Chamber of Commerce and Industry and the Federation of German Industry are assuming a decline in exports of around 15 percent.

Due to the Corona crisis, the Bavarian Prime Minister Söder would like a new rescue package for automotive suppliers, for the aerospace industry and mechanical engineering. He also advocated extending the short-time work benefit. The German planning system has not yet developed the speed that is necessary, Söder said: ​​”We have to get better and faster.”

The CDU Economic Council has suggested structural reforms to sustainably strengthen the economy so that the tax-funded economic stimulus program for 2020 “really takes effect”, said the General Secretary of the Economic Council, Steiger. He called for simplifications in corporate taxes, which primarily help family businesses. In addition, the digital policy must be implemented faster and more thoroughly. The Federal Government must deliver here, “for example by using standardizations to simplify the procedure for approval procedures and thus accelerate the expansion”.

A draft law has already been passed by the Federal Cabinet, according to which large banks must maintain a loss buffer of at least 8 percent in their total assets. Bonds particularly affected by the risk of loss may only be sold in denominations of at least 50,000 Euros so that small investors are protected. With the reform, the Federal Government is implementing part of the EU banking package into national law.

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