The recovery of the German economy has started

Berlin Even if the uncertainty about further economic development remains high, the worst part of the corona recession in Germany is behind us. This is what Tuesday’s economies are saying in their new economic forecast.

This confirms the summer forecasts of research institutes. The latest leading indicators also point to the beginning of the upswing: The purchasing manager index of IHS-Markit also shows that “Germany is still fighting its way down from the bottom in June” and that the downward trend in the euro zone has “weakened noticeably”.

However, the fall in gross domestic product (GDP) in the second quarter that came to an end was violent: According to the report of the Expert Council, it is likely to be twelve percent, a slump that has never been seen in the Federal Republic.

As a result of the upswing, a minus of 6.5 percent for 2020 will remain until the end of the year. In 2021 the economy would then grow by 4.9 percent.

The prognosis of the wise men is therefore in line with the expectations of the Federal Government, large research institutes, the Bundesbank and the OECD: they expect a recession of between five and seven percent in 2020, with the most recent forecasts being around six and a half percent.

For the next year, there is still a great deal of uncertainty, as can be seen from the range of the forecasts: the upturn expectations are between three and 6.4 percent.

No quick recovery on the job market

Despite the hopeful outlook, the five-member Council of Economic Practices around its chairman Lars Feld expects that gross domestic product will not return to pre-corona levels until 2022 at the earliest.

A rapid recovery in the labor market is no longer to be expected this year. The volume of work and employment are likely to decrease too sharply.

Short-time work has supported the labor market, the wise men say. But given the Ifo estimate that one in five employees subject to social security contributions may have been on short-time work in May, the recovery will take time.

For this and next year, the economies therefore expect an unemployment rate of 6.1 percent; that’s 1.2 percentage points more than before Corona.

In any case, the bridging aids and the stimulus package from the Federal Government are helping the economy. Without these measures, GDP would be one percentage point lower in 2020 and 2021, according to the Wise Men. The extent to which the VAT reduction will ultimately boost consumption depends on how much retailers cut prices.

It is also important to limit the measure until the end of December: only then would purchases of cars, refrigerators and other durable consumer goods be preferred.

The wise men expressly praise the quick reaction of the Federal Government and the European Central Bank (ECB): Because they would have provided liquidity quickly, companies could more easily bridge the slump in sales during the shutdown period. “A negative scenario, in which economic activity does not recover in the course of autumn, therefore seems unlikely,” says the report.

Although the costs of the relief measures are high, and including the decline in tax revenues, the state coffers would be heavily burdened: the common deficit in the coffers of the federal, state, local government and social funds put the wise men at six percent of GDP this year and 3 in 2021, 9 percent.

Growing debt

The debt-to-GDP ratio will rise from 60 percent in 2019 to 75.2 percent of GDP and will decrease slightly to 73.3 percent in 2021 due to the increasing growth. The economists estimate them lower than other economists who expect an increase of up to 90 percent of GDP.

However, the Council of Experts points out that part of the stimulus package can be financed from unused emergency aid and the refugee reserve. In addition, there are measures that only distribute burdens differently within the state budget. For example, the cost of accommodation for Hartz IV recipients, which is now largely borne by the federal government instead of the municipalities.

The greatest danger to the recovery is only partially influenced by the federal government: it assumes that the recessions in the euro area will be even deeper. France, Italy and Spain each expect GDP to plunge by more than 11 percent this year, and the United States by 6.1 percent.

In addition, all figures would be waste if there was a nationwide second wave of infections with a second lockdown. Despite the outbreak in Gütersloh, the wise men are currently optimistic that local outbreaks will be limited locally.

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