ifo Institute: German Economic Output Collapses by 16 Percent during Coronavirus Shutdown
During the coronavirus shutdown, economic output in Germany has collapsed by 16 percent. This is the result of an evaluation of April’s ifo surveys among some 8,800 companies across almost all industries. The estimate was based on the companies’ reported capacity utilization in January and in April as well as the actual and expected difference in sales in the first and second quarters.
“This means that gross domestic product is likely to have fallen by 1.9 percent in the first quarter and can be expected to collapse by 12.2 percent in the second,” says Timo Wollmershaeuser, Head of Forecasts at ifo. Overall, economic output this year will likely shrink by 6.6 percent adjusted for calendar effects; taking into account the relatively high number of working days, the slump reduces to 6.2 percent.”
Wollmershaeuser adds: “We will not return to pre-coronavirus conditions until the end of 2021. Only then will production of goods and services attain the level it would have reached without the coronavirus crisis. To achieve this, GDP must grow by 8.5 percent in 2021.”
The biggest slumps in business in April were reported by travel agencies and tour operators (down 84 percent), aviation (down 76 percent), accommodation (down 68 percent), public health (down 45 percent), arts, entertainment, and recreation (down 43 percent), and vehicle construction (down 41 percent). The only winner in the coronavirus crisis was the pharmaceutical industry, where capacity utilization rose by 7 percent.
Once the shutdowns have ended, different sectors are likely to recover at very different rates, assuming that the restrictions in force since March are lifted only slowly as of the end of April. “It is primarily in the provision of leisure, entertainment, culture, accommodation, and restaurant services that the consequences of the coronavirus crisis will be felt well into next year,” Wollmershaeuser continues.
“In manufacturing, value added is likely to return to its pre-crisis level in a year’s time. Accordingly, we will see all economic sectors return to growth starting in the third quarter – but this growth will be on a significantly smaller scale than the decline in the first half of the year.”
All this is based on the assumption not that the coronavirus is defeated in the coming months, but that its spread can be contained and a second wave of infection avoided. It also assumes that neither Germany nor its sales and procurement markets experience a wave of insolvencies leading to distortions in the financial system and requiring a realignment of global value chains.
