The Limited Times

Now you can see non-English news...

Corona crisis: why the economy in Germany is not shrinking as much as elsewhere in Europe

2020-09-14T18:01:55.354Z


The corona crisis is hitting the economy hard worldwide. But compared to countries like France, Italy, Great Britain or Spain, Germany has so far come through the recession lightly. There are reasons.


Icon: enlarge

Container in the port of Hamburg: "World trade is coming back surprisingly well"

Photo: Daniel Reinhardt / picture alliance / dpa

The forecasts for the German economy are more pessimistic than they have been for years.

But in other European countries they arouse envy.

Federal Economics Minister Peter Altmaier predicts that the gross domestic product will shrink by 5.8 percent in 2020.

Only by 5.8 percent.

For the other major economies on the continent, things are looking much darker: Spain, Italy, Great Britain and probably France too have to be prepared for a double-digit minus.

"Economic development in Europe's large states is extremely heterogeneous," says Gabriel Felbermayr, President of the Kiel Institute for the World Economy (IfW).

So far, Germany has come through the pandemic better than the others: both healthily and economically.

That was already the case in spring when the first corona wave chased through Europe.

In the second quarter - the worst for the global economy since the Second World War - the slump in this country was only about half as deep as in Spain or Great Britain.

And while these countries are still fighting hard with the consequences of the corona crash, the economy in this country has recovered faster than expected.

The mood is brightening: among companies and leading economists in the country.

"The persistently good domestic demand in Germany is helping the economy a lot," explains Felbermayr.

And the head of the Munich Ifo Institute Clemens Fuest: "Germany is one of the best among the major economies."

Why is it going so much better here than anywhere else?

1. Germany's economy was healthier before Corona

"This crisis hit economies that were very unevenly stable," says Felbermayr.

Italy suffered from decades of stagnation, Spain from the aftermath of the euro crisis, Great Britain from Brexit uncertainty, and France from a permanent reform backlog.

The German economy did not have such a serious structural problem.

In almost ten years of boom, many companies have been able to build up reserves.

And at the beginning of the pandemic, numerous companies still had a large number of orders to process.

2. Politics didn't have to slow down the economy like that

First Italy, then Spain, France and Great Britain.

All of them were at times centers of the pandemic: with more than 900 deaths per day.

To stop the wave, the government in Rome and Madrid put large parts of their economies into artificial hibernation for weeks.

London started the lockdown later, but it lasted longer and caused even greater damage.

Germany's hit the virus nowhere near as hard, and the restrictions on companies were lower.

"Unlike in France, for example, we did not have a blanket shutdown in Germany," says Ifo boss Fuest.

With the exception of the auto industry, many companies have more or less continued to run. "

3. Germany's industry is more resistant to viruses

France, Spain and Italy are among the most attractive and high-income holiday destinations on earth.

The collapse of international tourism is dragging their economies all the more down with it.

In Germany, the travel sector is nowhere near as important.

This makes industry all the more important.

And "travel restrictions are almost irrelevant for industrial goods," says Felbermayr.

"World trade is coming back surprisingly well - at first it is still a tenth below the normal level. The industrially strong countries benefit from this."

Like Poland, for example, where the recession is likely to be even weaker.

Germany's exports are still significantly lower than a year ago.

But "they have recovered surprisingly well," says Ifo boss Fuest.

"The German export industry is flexible: if things go badly in one market, they open up other markets - especially in Eastern Europe, for example."

Business with China is also picking up again.

In addition, the German export industry has a diverse range of products to offer, says Fuest.

Auto and mechanical engineering are currently weak, but exports in the pharmaceutical industry are increasing.

4. The federal government has more money to save

The German state has never been as generous as in this crisis.

The short-time work allowance is extended and extended, medium-sized companies and the self-employed can apply for bridging aid, and in order to entice consumers to shop, the federal and state governments waive part of the VAT.

The UK government, on the other hand, is likely to expire its short-time work program at the end of the month, which would threaten hundreds of thousands of people with unemployment.

State aid from Italy or Spain is also modest - compared to the billions from Berlin.

"Germany has invested an incredible amount of money. There is little doubt that the state can hold out," says Felbermayr.

If the federal government wants to borrow money on the capital market, it can even make a profit with it, because the interest rates on ten-year government bonds are negative;

at present, the creditors are getting back around four percent less from the federal government than they have lent it over the entire term.

Germany's mountain of debt will grow strongly because of the pandemic: According to Ifo, from almost 60 percent to around 80 percent of annual economic output.

But compared to France or Italy, that is still a low rate.  

5. But it is far from good

Germany's most important share index, the Dax, has made up for its losses from the first wave of pandemics, Lufthansa has been saved for the time being, unemployment has only increased moderately - and the number of bankrupt companies has even fallen.

But the stock exchanges fluctuate greatly, Germany's largest airline may cut thousands of jobs, more than four million people are still on short-time work - and experts fear a wave of bankruptcies as soon as companies that have become over-indebted due to Corona have to report this again.

And what happens when the corona infection numbers in this country soar as in France, the Czech Republic or other neighboring countries?

Or if the world stock markets crash again?

The situation is fragile.

And there are still a few percent missing for real recovery.

"We will not reach the old level of economic output again anytime soon," says Ifo boss Fuest.

And IfW President Felbermayr is amazed at the all too hopeful mood: "It is difficult to understand why companies assess the economic situation as well as last August. The optimism in Germany is exaggerated."

Many companies appeared to be very positive outwardly.

"But they hardly invest, it looks terrible, even in Germany."

As long as trading partners like France, Italy, Great Britain and Spain are weak, the local export industry will also have a problem.

Hopefully Germany’s economy will master the corona crisis.

But certainly not alone.

Icon: The mirror

Source: spiegel

All business articles on 2020-09-14

You may like

News/Politics 2024-02-23T08:21:57.445Z
News/Politics 2024-03-11T07:27:53.146Z

Trends 24h

Latest

© Communities 2019 - Privacy

The information on this site is from external sources that are not under our control.
The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.