German ‘five wise men’ worsen 2020 forecasts and postpone recovery

The economic institutes that advise the German Government, the so-called five wise men, they have corrected their forecasts for this year downwards due to the impact generated by the coronavirus, more sustained and stronger than expected and, consequently, they have delayed the economic recovery over time.

In their autumn report, the sages predict that the German Gross Domestic Product (GDP) will suffer a contraction of 5.4% this year, compared to 4.4% calculated in spring. For its part, the Government of Chancellor Angela Merkel estimates, healing in health, a decrease of 5.8%.

The economic recovery slope will be steeper, lower and slower than anticipated. In their last report, the wise they foresee that the first European economy will not return to the pre-crisis level until the end of 2021, at least. But even if that projection comes true, Germany will be 2.5% below the level it likely would have reached without the pandemic. For 2012, the five main economic institutes of the country forecast a growth of 4.7%, compared to the 5.8% previously announced, and 2.7% in 2022.

According to the institutes, there has been some recovery from the fall recorded in spring, but this evolution has been slowed by sectors especially affected by the social restrictions imposed by the pandemic, such as tourism, gastronomy and air transport.

“That part of the German economy will continue to suffer for a long time under the effects of the pandemic and will only feel the recovery when a large part of the measures to prevent contagions disappear,” explained the head of conjunctural studies at the Institute for World Economy (IfW) from Kiel, Stefan Kooths.

And that is the biggest risk for the prognosis, the evolution of the pandemic. The number of infections in Germany has increased considerably in recent weeks and has already exceeded the 5,000 daily cases registered in April.

Another factor that is holding back the recovery is the reserved attitude of companies in terms of investments, and not only because of the slowdown in the economy in general and the prevailing scenario of uncertainty, but also because the crisis has affected its capital reserves.

All links in the chain have been affected by the Covid-19 crisis. The production capacity of companies could be reduced by up to 1% and the labor market has burned some 820,000 jobs in the first half of the year and caused the unemployment rate to rise to 5.9%. Employment has grown again since then, but the pre-crisis level of employment will not be reached until 2022.

The five wise men They highlight in their report the importance of the shock measures implemented by the Government to sustain the situation as much as possible, but they recall that it has been at the cost of a record deficit. So far, about 183,000 million euros in public budgets.