Coronavirus will cost Germany several hundred billion euros, according to new figures from research centre the ifo institute released on Monday (23 March). Production losses and unemployment will hurt, so Berlin will have to dig deep into its pockets. EURACTIV Germany reports.
According to calculations by the German Institute for Economic Research (ifo), the pandemic threatens hundreds of billions of euros in production losses, rising unemployment and a hefty deficit in the national budget. Depending on the scenario, the economy is expected to shrink by 7.1 to 20.6 percentage points, corresponding to €255-729 billion euros.
“The costs will probably exceed anything known from economic crises or natural disasters in Germany in recent decades,” says ifo President Clemens Fuest. He recommends that “virtually every conceivable amount be used for health policy measures” to shorten the partial closure of the economy and further contain the pandemic.
Time is money
This partial closure of the economy was decided by the government to shut down social life in Germany and thus slow the spread of the virus. This is to prevent the health system from becoming overloaded.
Nationwide, restaurants, bars and cafés must close (except for takeaway and delivery), as well as businesses where a minimum distance of 1.5 metres between people cannot be maintained – for example hairdressers, tattoo studios or massage parlours.
In some federal states, stricter rules are already in force, leading to more far-reaching disruption of economic cycles. In Bavaria, for example, only businesses that sell necessary supplies are still open.
The most important factor in calculating the economic damage is time. The faster the consumption cycle starts up again, the lower the costs will be.
Fuest anticipates that a one week extension of the partial closure will cause additional costs of €25 to 57 billion or a 0.7 to 1.6 percentage point drop in growth. But nobody can say with certainty how long the government’s measures will have to last.
Goodbye, black zero
The ifo also paints a gloomy picture for the labour market. What’s coming puts “the conditions at the height of the financial crisis in the shade,” warns Fuest. In the ifo scenarios, up to 1.8 million jobs subject to social insurance contributions (or 1.4 million full-time jobs) could be cut.
Federal Finance Minister Olaf Scholz (SPD) has already announced that the black zero, the German colloquialism for a balanced budget, cannot be maintained in such a situation.
According to ifo, the state will have to spend an additional €200 billion – although this does not include any European rescue packages that may be deployed. Fuest emphasised that the additional spending is “desirable and necessary” to stabilise the German economy.
[Edited by Sam Morgan]