Extended Lockdown Causes German Economy to Stagnate in First Quarter
The extension of the lockdown until mid-February is likely to cause the German economy to stagnate in the first quarter, according to the latest estimates from the ifo Institute. For the second quarter, the institute expects growth of around 3 percent. “Every extra week that the lockdown continues leads directly to losses in sales, production, and value added,” says Timo Wollmershäuser, Head of Forecasts at ifo.
“Assuming that the adopted measures are reversed by March at the latest, growth in economic output will pick up in the second quarter by about the same amount,” Wollmershäuser continues. “The slump will therefore be followed by a rapid recovery; the more severe the slump, the stronger the recovery. This is what we saw last year.”
He said that the value added by service providers who have been directly affected by closures is certain to decline to a similar extent as in spring 2020. “However, the situation is markedly different among manufacturers and service providers serving the manufacturing sector, where the lockdown does not seem to have had any impact so far. Their economic output should continue to increase in the first quarter,” Wollmershäuser says.
He says it is still unclear what the impact will be on public service providers, education, and health, which together account for a sizeable share of total economic output – almost 19 percent. “Output here plummeted by more than 8 percent in the second quarter of 2020, in part because almost all the daycare centers were completely shut down, meaning no hours were worked there,” Wollmershäuser says. There is much to suggest that the current situation is fundamentally different from spring 2020; one reason is that use of childcare is higher at just under 50 percent.
