ifo Institute: Coronavirus Will Cost Europe Hundreds of Billions of Euros in Production Losses

The fight against the coronavirus will lead to production losses, which will cost European countries hundreds of billions of euros. This is the result of the ifo Institute’s recent calculations. “In addition to medical reasons, there are also economic reasons for investing massive amounts in health protection. This would help contain the epidemic and at the same time allow us to then gradually lift the closures of schools and businesses,” says ifo President Clemens Fuest. In its calculations, the ifo Institute looked at the United Kingdom, Italy, Spain, France, Austria and Switzerland.

“We urgently need companies to take precautions that would allow them to resume production while still containing the spread of the epidemic,” Fuest adds. “If the shutdown lasts for more than a month, the production losses quickly reach dimensions that are well beyond the growth slump of previous recessions or natural disasters, at least in the history of the European Union.

The ifo Institute calculated how much value added is lost if production is interrupted. It also estimated follow-up costs from a delayed return to normal economic activity, or from permanent impairment as a result of bankruptcies or the loss of business relations during the crisis.

According to the ifo Institute, two months of partial closure in the UK will cause losses of EUR 193–328 billion. This represents a reduction in the annual growth rate of 7.7–13.0 percentage points. If the shutdown extends into a third month, the costs go up to EUR 271–480 billion, or a loss of growth of 10.7–19.0 percentage points. Just a single week’s extension in the UK will incur additional costs of EUR 19–38 billion, and thus a decline in growth of 0.8–1.5 percentage points. An extension of one to two months drives up costs by as much as EUR 152 billion, equivalent to 6.0 percentage points of growth.

In Italy, which has been particularly hard hit, ifo estimates that the costs of a two month partial shutdown will amount to EUR 143–234 billion, depending on the scenario, and reduce the annual growth rate by 8.0–13.1 percentage points. If the shutdown extends into a third month, the costs go up to EUR 200–342 billion, which means a loss of growth of 11.2–19.1 percentage points. Just a single week’s extension in Italy will incur additional costs of EUR 14–27 billion, and thus a decline in growth of 0.8–1.5 percentage points. An extension of one to two months drives up costs by as much as EUR 108 billion, or 6.3 percentage points of lost growth.

In Spain, which has also been severely affected, the ifo Institute expects a two-month shutdown to incur costs of EUR 101–171 billion, thus reducing the annual growth rate by 8.1–13.8 percentage points. With a shutdown of three months, the costs reach EUR 141–250 billion, cutting growth by 11.3–20.0 percentage points. An extension of one week in Spain will incur additional costs of EUR 10–20 billion, and thus a decline in growth of 0.8–1.6 percentage points. An extension of one to two months drives up costs by as much as EUR 78 billion, or 6.1 percentage points of lost growth.

For France, the ifo Institute expects a shutdown period of two months to incur costs of EUR 176–298 billion, depending on the scenario, and reduce the annual growth rate by 7.3–12.3 percentage points; with a shutdown period of three months, the costs amount to EUR 247–436 billion, or 10.2–18.0 percentage points of lost growth. An extension of one week in France will cause additional costs of EUR 18–35 billion, and thus a decline in growth of 0.7–1.4 percentage points. An extension of one to two months drives up costs by as much as EUR 138 billion, or 5.7 percentage points of lost growth.

For Austria, the ifo Institute sees costs of EUR 34–57 billion with a partial closure of two months. This reduces the annual growth rate by 8.5–14.2 percentage points. If the shutdown extends into a third month, the costs go up to EUR 47–83 billion, which means a loss of growth of 11.9–20.9 percentage points. Just a single week’s extension in Austria will incur additional costs of EUR 3–7 billion, and thus a decline in growth of 0.8–1.7 percentage points. An extension of one to two months drives up costs by as much as EUR 26 billion, equivalent to 6.6 percentage points of growth.

For Switzerland, ifo calculations indicate that a two-month partial shutdown would incur costs of EUR 49–81 billion, depending on the scenario, reducing the annual growth rate by 7.8–12.9 percentage points. If the shutdown lasts three months, costs go up to EUR 69–119 billion, or 11.0–19.0 percentage points of lost growth. Just a single week’s extension in Switzerland will incur additional costs of EUR 5–10 billion, and thus a decline in growth of 0.8–1.5 percentage points. An extension of one to two months drives up costs by as much as EUR 38 billion, or 6.1 percentage points of lost growth.