ifo Institute: Slump in German Economic Output Significantly Understates the Extent of the Crisis
The downturn in economic output in the first quarter of 2020 by no means shows the true extent of the crisis, according to ifo Institute assessments. “Measures by the German government to contain the coronavirus pandemic did not slow down the production of goods and services until into the month of March; i.e., not until late in the first quarter. Much of the impact won’t become apparent until April. “According to estimates by the ifo Institute, economic output collapsed by 16 percent during the coronavirus shutdown,” says Timo Wollmershäuser, Head of Forecasts at ifo.
With the cautious easing of government restrictions in the second half of April, production and sales in all economic sectors will gradually start to increase again in May and June. Nevertheless, gross domestic product is likely to shrink by 12.2 percent in the second quarter, representing a much steeper decline than at the start of the year.
According to the preliminary results for the national accounts published today by the German Federal Statistical Office, gross domestic product fell by 2.2 percent in the first quarter. This means that, despite the high degree of forecasting uncertainty, the estimates of minus 1.9 percent put forward by the ifo Institute and the Joint Economic Forecast in April were relatively close to the first official figures released.
The slump in value added has been particularly severe in the hospitality industry and among service providers in the arts, entertainment, and recreation sectors, as the government measures imposed direct restrictions on their business activities. Economic output also dropped in manufacturing, which was impacted by shutdowns of automotive production facilities in particular. Only the construction industry increased its value added.
