ifo Institute Expects Gradual Recovery from Coronavirus Slump to Start Now in Germany
The ifo Institute expects the German economy to begin recovering from the downturn caused by the coronavirus crisis. After economic output fell by 2.2 percent in the first quarter and 11.9 percent in the second, the ifo Institute is forecasting growth of 6.9 percent and 3.8 percent in the third and fourth quarters, respectively. “Things will gradually start to pick up again now,” says Timo Wollmershaeuser, Head of Forecasts at ifo. However, this is based on assumptions about the further course of the epidemic and the political responses to it, which come with a high degree of uncertainty.
“The strong growth expected in the second half of the year can be explained as a result of the low goods production and service levels during the economic shutdown. Shutdown measures have now been relaxed or, for some sectors of the economy, lifted completely,” Wollmershaeuser adds.
However, overall economic output will shrink by 6.7 percent this year compared with 2019. For next year, the ifo Institute expects growth of 6.4 percent, meaning that the level of economic output achieved at the end of 2021 will be back on par with the end of 2019.
The average number of unemployed people will increase from 2.3 million to 2.7 million in 2020. Next year, by contrast, it will fall to 2.6 million. This will take the unemployment rate up from 5.0 to 5.9 percent this year, before it falls again to 5.6 percent in 2021. According to calculations by the ifo Institute, the number of short-time workers fell to 6.7 million in June 2020, down from 7.3 million in May. The average number of employees will fall from 45.2 million to 44.8 million this year and will rise again slightly to 44.9 million next year.
Private consumption is likely to decrease by 6.4 percent this year. Equipment investments will sink by as much as 19.9 percent.
The coronavirus crisis will leave a clearly visible mark on the national budget: the balance value of income and expenditure slipped from EUR 50.4 billion last year to EUR –175.8 billion this year. Besides the economic downturn, this is primarily attributable to the coronavirus aid package and the economic stimulus package, which alone cost over EUR 160 billion. Next year, the national budget will remain in the red at EUR –76.5 billion.
German exports are likely to fall by 13.3 percent in 2020; imports by 7.7 percent. As a result, the internationally criticized current account surplus (trade, services, and transfers) will shrink from EUR 245.2 billion to EUR 176.2 billion, or from 7.1 percent of economic output to 5.4 percent. Next year, however, exports will rise again to 13.4 percent and imports to 7.8 percent. In turn, the current account surplus will increase to EUR 268.7 billion or by 7.6 percent.
