Germany’s Economic Response to the Coronavirus Crisis

Bardt Hubertus; Grömling Michael

External Publication 27. October 2020 Hubertus Bardt / Michael Grömling in The Global Trade and Innovation Policy Alliance (GTIPA) GTIPA Perspectives: Germany’s Economic Response to the Coronavirus Crisis

After several quarters with shrinking production in the manufacturing sector, the COVID-19 crisis has hit the German economy with unprecedented force. The simultaneity of multiple supply and demand shocks is likely to be unique compared to previous economic crises.

External Publication 27. October 2020 Hubertus Bardt / Michael Grömling in The Global Trade and Innovation Policy Alliance (GTIPA)

GTIPA Perspectives: Germany’s Economic Response to the Coronavirus Crisis

After several quarters with shrinking production in the manufacturing sector, the COVID-19 crisis has hit the German economy with unprecedented force. The simultaneity of multiple supply and demand shocks is likely to be unique compared to previous economic crises.

Contacts

A nationwide lockdown with the closing of schools and many services, contact restrictions, and event cancellations was introduced in March and gradually lifted in May 2020. The number of active COVID-19 cases, which rose to a maximum of 72,000 in early April (see Figure 22), has declined since then and remained well below the 10,000 cases-threshold since the end of May. Although the medical situation is stable, the consequences of the holiday season, the reopening of schools, and more indoor activities in autumn and winter are not clear yet. In August 2020, the number of infections had begun to increase again and reached a new peak in mid-October. However, due to higher testing activities the number of undetected cases is probably lower than in April. A new nationwide lockdown situation still seems to be improbable, yet cannot be ruled out any longer.

Corona From a Business Perspective Regarding the economic consequences of the pandemic, there is also a high degree of uncertainty about the duration and extent of the diverse effects on the supply and demand side of the German economy. The impact of the coronavirus pandemic on the business processes of German companies was assessed with the regular business survey conducted by the German Economic Institute (see Grömling, 2018 for details on this economic survey). Given the extraordinarily high demand for information and the assumption that companies’ assessments could change significantly in the short-term, the IW survey was carried out weekly from early March to mid-May and until the end of June on a biweekly basis. It investigated the impact in spring/summer 2020 as well as for 2020 and 2021 as a whole. In each case, businesses were able to select “strong,” “weak,” or “no impact” as a response option, which should help to assess the extent of the disruption. Furthermore, the survey asked about the duration and causes of the impacts. For more details on the methodology, scope, and interpretation of the current survey results, see Bardt/Grömling (2020).

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