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German economy will not escape recession

2020-03-30T19:15:25.558Z


GDP would drop to a minimum of 2.8% in 2020 according to economic advisers to the Merkel government.


From our correspondent in Berlin

The German economy was in small shape before the coronavirus crisis. The epidemic will plunge it into a deep recession, brutal, but which could be followed by a rebound, just as sharp, estimated Monday the five experts forming the Committee of the wise, charged with advising the government of Angela Merkel on the economic questions.

Read also: Coronavirus: why is the death rate in Germany so much lower?

According to the scenario favored at this stage, growth would drop by -2.8% this year before picking up again at + 3.7%. This assumption assumes a normalization of the situation this summer, like the calendar observed in China. If activity were to stop longer and more strongly, the recession would reach -5.4%, but the relaunch would also be more vigorous (+ 4.9%).

Finally, the darkest scenario, described by a “U” rather than a “V” curve, is based on a timetable for coming out of the crisis beyond the summer, and would result in a fall in investment and consumption of households and by damaging the banking system: GDP would fall by -4.5% in 2020, before a very timid recovery next year (+1%).

The hypothesis of a “V” curve is all the more likely to occur since “it is not like in wartime when the infrastructures are bombed and the workers sent to the front”, minimized one of the committee members, Volker Wieland. And to add: it will then be "possible to quickly reuse production capacities as before as soon as the restrictive measures have been lifted".

To do this, experts call for giving "priority" to the health system. They also welcome the measures adopted so far by the government, aimed at promoting the use of short-time working, ensuring the liquidity of businesses, and even strengthening their capital. This plan, which is freed from all budgetary discipline, reaches nearly 1100 billion euros.

Nevertheless, loyal to German orthodoxy, the wise men wanted to frame this avalanche of fresh money. "The stimulus measures to support activity in the short term do not deliver as long as the activity restrictions continue," they warn. It is important that any state holdings in companies in difficulty remain “temporary” and early foresee “an exit scenario” of capital. Finally, they point out, "fiscal resources are not unlimited".

Read also: Coronavirus in Germany: Merkel invokes history but avoids martial postures

In this exceptional period, the money should also be spent on the development of public transport, the renovation of schools and the development of digital capacities. So many infrastructures which today suffer from underinvestment. Finally, the Merkel government must strive to adopt a "clear communication" , likely to "reduce the uncertainties" of economic agents. The stake is not small and the difficulty shared: the Committee of Wise Men itself recognizes the limits of its forecasting model.

Source: lefigaro

All business articles on 2020-03-30

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