1. Home
  2. Press
  3. Economic Outlook
Show image in lightbox
Michael Hüther, Director of the German Economic Institute
Michael Hüther at Markets Germany Interview 9. October 2020

Economic Outlook

What Germany's response to the corona crisis is and which direction the economy will take is answered by Michael Hüther, director of the German Economic Institute, in an interview with Markets Germany.

What did Germany get right in its economic response to corona?

We have to remember that there is no purely financial or economic reason for this crisis. At the root of the last financial crisis in 2008 was mismanagement of financial markets and a lack of coordination, which led to a massive loss of trust, and that had a commensurate effect on the system. And the decline went on through Q4 of 2008 into Q1 of 2009.
The situation in the first half of 2020 was different because the decline was a straight plunge down – almost as if someone used a ruler – because of the lockdown. And this time the government reacted correctly in various phases.

First, it ensured stable corporate liquidity in March and April. That also applies to the furlough program. Then, during the second phase, it looked at preserving supply chains with an eye towards Europe, but also via interventions with the Economic Stabilisation Fund. Then, on June 3, it passed a stimulus package to address a situation where demand has fallen. The instruments and the timing were both well chosen.

Was any one instrument particularly important?

The furlough program was certainly important. It was introduced and tested out during the financial crisis (2008 – 2009). A lot was done in credit availability, which I also see as important. And now there is a surprise VAT cut of EUR 20 billion in the second half of 2020, which is helping to provide economic impulses. We are going well beyond what was in both economic packages 10 years ago.

Is Germany making sufficient progress on issues like digital infrastructure and climate-friendly technology?

Firstly, economic stimulus policy is not structural policy. The first part of the June 3 package was about stimulating the economy, which was the right way to go. Economic stimulus has to be timely, targeted and temporary. That has been the case, so it should be effective.

Secondly, in May, some colleagues and I presented a second program to stimulate growth. It includes electric vehicle charging infrastructure, hydrogen strategy and 5G – these are the structural elements that will be needed in the mid-term and that will last well into 2021 and 2022.

How is Germany trying to attract foreign investors?

The government is trying to create favorable conditions for Germany as a business location. Part of the stimulus package is that we’ll be reviewing our entire business tax legislation. Efforts to reduce bureaucracy have been going on for years. And then there’s the support for research and development. These are all important elements.

To the Interview at Markets Germany

More on the topic

Read the article
Development of the Competitive pressure from China on the EU market
Jürgen Matthes IW-Report No. 39 15. August 2023

Development of the Competitive pressure from China on the EU market

This report examines whether China's exports are increasingly penetrating those sectors in which the German economy has its strengths. To investigate this question, the changes in China's and Germany's shares of EU imports are analysed descriptively over the ...


Read the article
Hubertus Bardt / Michael Grömling IW-Trends No. 2 16. June 2023

Effects of Public Investment on Companies in Germany – Results of the IW Business Survey

Weak public investment activity in Germany has contributed to the low productivity growth of the last decades. Even maintaining the contribution to growth of state-owned capital stock at the already low level of the 1990s would have required an additional ...


More about this topic

Content element with id 8880 Content element with id 9713