Joint Economic Forecast

Joint Economic Forecast Spring 2020: Economy in Shock – Fiscal Policy to Counteract

Germany’s economy is slumping dramatically as a result of the coronavirus pandemic. To slow down the wave of infection, the government has severely restricted economic activity in Germany. Consequently, GDP will shrink this year by 4.2 percent.

Buehne_Artikel_Gemeinschaftsdiagnose.jpg
Video

Press conference: Joint Economic Forecast Spring 2020: Economy in Shock – Fiscal Policy to Counteract


 

Video

Interview: Joint Economic Forecast Spring 2020: Economy in Shock – Fiscal Policy to Counteract

Serious Recession in Germany

The recession is leaving very clear marks on the labor market and the government budget. At its peak, the unemployment rate will jump to 5.9 percent and the ranks of short-time workers will swell to 2.4 million. Fiscal policy stabilization measures will lead to a record deficit this year for the general government of EUR 159 billion. The economy will gradually start to recover once the shutdown is over. Accordingly, the increase in GDP next year will be strong at 5.8 percent. There are considerable downside risks associated with this forecast; the pandemic may not recede as quickly as anticipated, or perhaps efforts to restart the economy will be less successful than expected or will trigger a new wave of infection.

Favorable Initial Fiscal Situation

Overall, the coronavirus pandemic is triggering a severe recession in Germany. However, it should be possible to overcome the adverse effects of the pandemic itself in one to two years. Germany is in a good position to cope with the economic slump and to return in the medium term to the economic level it would have reached if the crisis had not occurred. Given its favorable initial fiscal situation, the government can afford to enact far-reaching measures to cushion the short-term negative consequences for companies and private households. Macroeconomic losses will nevertheless remain, which will place very different burdens on different stakeholders, and the final distribution of these burdens has yet to be decided.

Real GDP in Germany - Joint Economic Forecast Spring 2020

“The recession is leaving very clear marks on the labor market and the government budget. Germany is in a good position to cope with the economic slump and to return in the medium term to the economic level it would have reached if the crisis had not occurred.”

Prof. Dr. Timo Wollmershäuser

Massive Slump in the Global Economy

According to initial indicators, the global economy has plummeted. Key indexes on the stock markets have seen a steep decline, at times of more than 40 percent, and the recently published company surveys indicate that economic sentiment has soured faster and more dramatically than in the acute phase of the global financial crisis. The nosedive in economic activity in China alone in the first quarter meant that global economic output barely rose. In the rest of the world, the crisis will have its main impact on the second quarter, so even if activity in China returns to a higher level in the spring, global production will actually shrink. The institutes then expect the global economy to broadly recover in the second half of the year, meaning that growth rates in global production will be considerably higher than usual.

Under these conditions, average global production for 2020 will fall short of last year’s level by 2.5 percent – a decline that is somewhat stronger than in the Great Recession of 2009. In 2021, production will largely approach the level that would have been expected had the pandemic not occurred, resulting in an increase in global production of 5.4 percent.

Real GDP in the Euro Area - Joint Economic Forecast Spring 2020
Real GDP in the World - Joint Economic Forecast Spring 2020

Risks

Downside risks: pandemic recedes significantly more slowly than expected; efforts to restart the economy fall short of the baseline scenario or trigger a new wave of infection; further infection-control measures come into effect, which shut down production for longer or on a larger scale than assumed here; distortions in the financial system; sovereign debt crisis; realignment of global value chains and sales markets

Upside risks: the epidemic takes a more favorable course than expected; faster economic recovery

Contact
Prof. Dr. Timo Wollmershäuser

Prof. Dr. Timo Wollmershäuser

Deputy Director of the ifo Center for Macroeconomics and Surveys and Head of Forecasts
Tel
+49(0)89/9224-1406
Fax
+49(0)89/907795-1406
Mail
You Might Also Be Interested In