Recovery of the Eastern German Economy Taking Longer than Expected
Next year, the economy in eastern Germany and Saxony is expected to grow by 3.6 and 4.1 percent respectively (Germany: plus 4.2 percent growth). However, the renewed lockdown means that the economic recovery is taking longer than had been expected in the summer. In 2020, economic output in eastern Germany is likely to be minus 4.4 percent lower; in Saxony, gross domestic product is even expected to shrink by minus 5.0 percent (Germany: minus 5.1 percent lower). This means the coronavirus-related slump will turn out to have been somewhat weaker than assumed in the ifo Institute’s summer forecast.
In the second half of 2020, the coronavirus crisis will continue to plague economic development. However, while both consumer services and manufacturing were hit hard in the first half of the year, manufacturing developed more robustly in the second half. “Unlike in the first half of the year, international supply chains have remained largely intact in the second half,” says economic expert Joachim Ragnitz from the ifo Institute’s Dresden Branch. “Moreover, manufacturing has managed to make up for some of its production losses, unlike in many service sectors.”
Consumer services are also likely to recover only slowly in the coming year. “Only when the spread of infection levels off and restrictions are lifted can we expect a recovery in the service sector,” Ragnitz continues. Growth is also being held back by weak corporate investment, with investment decisions being postponed amid underutilized capacity and high uncertainty. This, in turn, is dampening development in the construction sector as well.
The ifo institute expects the number of people in employment in eastern Germany to fall by just under 65,000 in the current year, nearly 21,000 of them in Saxony (minus 0.8 and 1.0 percent respectively). Employment is expected to grow again slightly in 2021, with the workforce growing by 8,000 and 2,000 people respectively (both plus 0.1 percent).
