Berlin The second corona wave with high numbers of infections is rolling through Europe. A much more contagious virus mutation is appearing in Great Britain, many countries, including Germany, are in lockdown over Christmas and probably long after that.
It’s poison for the economy. The upswing in summer will probably come to a standstill for the time being, and economic researchers are even expecting a second corona recession at the turn of the year. A week of hard lockdown, estimates Enzo Weber, economic expert at the Institute for Employment Research (IAB), the economy will cost around 3.5 billion euros, or around 14 billion euros every month.
The Munich Ifo Institute expects the gross domestic product to shrink by half a percent in the fourth quarter of 2020, the DIW expects one percent minus that Deutsche Bank even minus one and a half percent. The first quarter of 2021 is likely to be even weaker in the opinion of the economy.
Nevertheless, almost all economic experts expect 2021 to be a year of upswing. In any case, the forecasts for Germany for 2021 are positive and range from 2.8 percent (OECD) to 4.9 percent (RWI, IMK).
Six reasons for the economic growth:
1. Vaccinations will end the pandemic
From December 27, vaccination will take place in Germany and across the EU, before the UK, the USA and Canada had started vaccinations. “Vaccination changes everything,” says Gabriel Felbermayr, President of the Kiel Institute for the World Economy (IfW).
The manufacturers Biontech and Pfizer had received EU approval for their vaccine from the European Medicines Agency EMA on December 21, the USA manufacturer Modern should also receive it on January 6th.
According to Health Minister Jens Spahn, the federal government has ordered vaccination doses for 68 million citizens from both manufacturers: They could be vaccinated by the end of 2021.
If this works, then – with a population of 83 million people – the herd immunity will be achieved. The pandemic would end, and with it distance requirements, mask requirements and ever new lockdowns.
The upswing that economic researchers expect in the spring will not be stalled by the next virus wave, as it was in winter. Since the vaccination started, sentiment indicators such as the Ifo business climate have brightened in anticipation of normal business.
The risk here: The vaccinations cannot be given so quickly, for example because the vaccine cannot be produced so quickly, because it may be less effective against virus mutations or because the side effects are stronger than expected.
2. The industry hardly suffers from the Christmas lockdown
The supply chains in Europe have remained intact this time, at least so far. Travel is prohibited for people at most, but not for goods. The auto, chemical and mechanical engineering industries, which were hit hard by the first lockdown, remained on a growth path into December – despite lockdowns.
“The lockdown is hitting individual industries hard. However, the German economy as a whole is showing itself to be resilient, ”says Ifo President Clemens Fuest.
The order backlog also grew in October and November, as did the incoming orders, as corresponding surveys by IHS Markit across Europe showed. In Asia it has already been possible to bring the number of infections under control and also to keep them low in winter: The economy there is growing strongly, especially in China.
German export companies also benefit from this. And industry is an important branch of the economy: it represents 24 percent of economic output; if she is doing well, other industries are also affected. Trade, on the other hand, only accounts for nine percent, the hospitality industry for two percent of the gross domestic product (GDP).
The risk here: Changes like the last one in Great Britain force new travel restrictions and border closings. Or the pandemic will return to Asia after all.
3. The desire to consume will return
In 2020, private households saved more than ever before, the savings rate rose to 20 percent – also because shopping was less fun under Corona conditions. Some of this money could go into consumption in 2021, because after the long lockdown, many people will be happy to visit restaurants and events again, buy new clothes and travel.
In addition, the solidarity surcharge for 90 percent of the population will be abolished at the beginning of 2021, which – despite the end of the temporary VAT cut – will also increase purchasing power.
The domestic economy can pick up, also because short-time work has prevented mass unemployment. Income has therefore not plummeted as sharply as it would have been in the case of mass layoffs. “Although the winter lockdown will slow down the recovery process on the labor market somewhat, over the course of the year employment will increase and unemployment in Germany will decrease,” says Alexander Herzog-Stein from the union-related Institute for Macroeconomics and Business Cycle Research.
The risk here: After the short-time work, the digital structural change began so hard and quickly that many employees were still unemployed.
4. State aid builds bridges for companies across the economic downturn
Companies that were forced to close were compensated. System important companies like the Lufthansa Saved by state participation. Low-cost loans from KfW have helped to secure liquidity. In 2021, too, companies whose sales and profits collapse due to a lockdown will receive state money to cover their fixed costs.
The goal: As soon as the economy really picks up again, companies can pick up on pre-crisis business.
“The substance of the German economy is intact. It has built up significant reserves in the good years before. That applies to the majority of companies and, last but not least, to the banking system, ”says Lars Feld, head of the economy.
The risk here: In the end, the lockdowns across Europe lasted so long that many shops, restaurants, hotels, event organizers and manufacturing companies cannot hold out. From February onwards, there would be a wave of bankruptcies, which in turn put a strain on bank balance sheets and, in the worst case, could lead to bank failures.
5. The course of the summer boom
After the deep recession in spring, a strong recovery began in May – immediately after the first easing took effect. The economic curve ran like a V: After the sharp slump, there was an upswing that was almost as strong. By the beginning of October, the gross domestic product had risen to 96 percent of the pre-crisis level.
Had it been possible to avoid the second wave, the German economy would probably have been able to pick up on pre-crisis levels at the beginning of the year. The strong rebound effect showed: It is actually “only” the lockdowns that in 2020 prevented the economy in this country from growing. With the end of all contact restrictions, one can count on the immediate start of recovery.
“The economic recovery is interrupted by the second wave of infections. But postponed is not canceled, ”said IMK director Sebastian Dullien. This even applies to the auto industry, which is also suffering from a structural crisis. It produced more cars in November than before the corona crisis.
The risk here: The virus mutates in such a way that the vaccines do not help and further corona waves force new lockdowns.
6. Donald Trump leaves the White House
Joe Biden is US President from January 20, Donald Trump is leaving the White House. Reliable international cooperation between Western democracies will be possible again, and trade wars are now much less likely.
For the export-oriented German industry, the general conditions are suddenly better. The USA will also rejoin the Paris Climate Agreement. The climate-friendly transformation of the economy will advance faster in the US-European ranks.
World trade has recently sent positive signals, container throughput has increased in ports, and shipping between Asia and Europe is back to normal. “Container throughput seems to be stabilizing at a high level,” said RWI economic chief Torsten Schmidt: “World trade has apparently largely recovered from its slump in spring.”
The risk here: Even after the change of presidency, the USA and China are becoming increasingly entangled in trade conflicts. Or the Europeans gamble away their friendship by refusing to carry greater military burdens.
More: Optimism comes from the industry