On the Reaction of Companies to the Coronavirus Crisis: What Role Do the Expected Duration of the Crisis and the Business Situation Before the Crisis Play?

In order to combat the coronavirus pandemic, economic activity in large parts of the German economy was cut back considerably. Using data from the ifo Business Survey, this study examines how German companies adjusted their expectations in the course of this partial shutdown and what measures they took. We first show that the crisis is exacerbating existing difficulties: companies that were already in a bad situation before the crisis are more severely affected by it and expect additional problems for their companies in the future. Consequently, such companies cut jobs and cancel investments with above-average frequency. The expectations regarding the duration of the crisis are also an important determinant of the measures taken: companies that expect the crisis-related restrictions on public life to last at least four months are significantly more likely to cut jobs or cancel or postpone investment projects than companies that expect the restrictions to be lifted quickly.