July 30, 2021

This is how the German economy ‘resists’ the challenge of the coronavirus

The coronavirus has dealt a historic blow to the German economy. In the second quarter of this year, Chancellor Angela Merkel’s country’s economy contracted by 10.1%, according to data presented by the German Federal Statistical Office (Destatis) on Thursday. “It is the biggest drop in GDP since 1970,” the German media reported when reporting this news.

However, this fact, alarming as it may be, represents the past of the German economy, not its present or its immediate future. Destatis’ is an economic photograph of what has happened economically in Germany between April and June. Currently, and henceforth, the German economy is and will be growing, according to the German Executive, government advisers and other experts.

“We have seen how the fall has been, but it seems that the lowest point of that fall is already behind. Because what has been observed in the economy for a while now is that companies have returned to activity and have expanded their capabilities “, explains elDiario.es Hubertus Bardt, head of the Institute of the German Economy, an institution based in Cologne.

In Berlin, for example, there are already estimates for the third quarter of the year that point to growth of up to 3%, according to the accounts of the German Institute for Economic Research (DIW for its German acronym). Thus, the German government’s economy minister, the conservative Peter Altmaier, said at the beginning of July in an interview with the popular newspaper Bild that he was “sure” that the economy “will grow again” after the summer break. At the latest, according to Altmaier, the German economy will be reconciled with growth in October.

In recent weeks, indicators have been accumulating that point in that direction. Thus, the IfO Institute, another body for the study of the country’s economy, has seen how its indicator on the business climate, resulting from a monthly survey in the private sector, has not stopped growing in the last three months. The indicator was at 90.5 points in July, almost four units more than in June (86.3 points).

“The companies are notably more satisfied with the current situation. They are also cautiously optimistic about the coming months,” they said in the IfO about the results of that July study. “The German economy is recovering step by step,” they add.

Bardt, from the Institute of the German Economy, points out that, after the “brutal fall” in April, there is now “greater optimism” in business. This climate, which is still far from “euphoria”, according to Bardt, would surely be impossible without the much that the Merkel government has done to cushion the blow caused by the COVID-19 crisis for the economy.

In early June, the German government launched an economic stimulus program valued at € 130 billion. This is in addition to the 156,000 million of government debt approved in March and a stabilization fund for the economy with 600,000 million euros.

Germany, a separate economic case

Furthermore, it should not be forgotten that, economically, Germany is a separate case. In German soil, confinements such as those lived in countries such as Italy, Spain or France have not been applied. At the health level, the incidence of the COVID-19 crisis has been lower.

Thus, the Robert Koch Institute (RKI for its German acronym), the German federal agency for the prevention and control of diseases, reported at the end of this week that the number of deaths from the new infectious agent was 9,128. That figure – resulting from just over 206,000 positive cases – is well below those registered in Italy, Spain or France.

In this context, there are sectors of the German economy that have not been so affected by the type of restrictions on social contact imposed against SARS-CoV-2, the virus of COVID-19. Construction, for example, has maintained activity levels that have been practically at the opposite end of sectors such as the hotel and restaurant sector, those most affected by social distancing measures against the coronavirus.

“Construction was little affected, as was the architecture sector. For example, we have spoken with architects who have told us that they cannot cope because the agent has been at home for two months and they have taken the opportunity to think about how give a new image to your house, “says Bardt, the head of the Institute of the German Economy.

Machinery manufacturing – a key area in the dense Teutonic industrial landscape – has also been able to sustain activity considerably, even in the worst days of the pandemic in Germany. “The production itself was possible for companies in this sector, and also the contracts were there, because contracts for the manufacture of machinery, just like when building a house, are made well in advance of the time of delivery of the product, “emphasizes Bardt. “Demand here did not suffer a rapid drop like that of the private services sector, where there has been a drop like never seen before,” adds this economist.

But, for a while now, the hotel and restaurant industry have returned to activity, although with restrictions. All in all, that return has been an element to be taken into account by the German Council of Economic Experts, the main advisory body of the German Government, where there are those who speak of the beginning of a “slow recovery” this summer.

Recovery with the brake applied

At the end of June, Monika Schnitzer, member of that group of experts, told the British newspaper Financial Times that there were then “indicators that show real-time reasons for optimism”. “Electricity consumption is stabilizing, the truck toll mileage index [basado en los pagos hechos por camioneros en las autopistas alemanas] it’s up and there are restaurant reservations, “Schnitzer pointed out at Financial Times.

However, the situation in June and July does not seem to be the same as that for August due to the increasing number of infections that have been registered in recent days. The German political and health authorities have expressed visible concern in this regard.

On the other hand, in the Institute for the World Economy in Kiel (IfW, for its German acronym), they observe that “the recovery of the economy is slowed down in Germany”, among other things, by “the weakness of exports”, according to the terms of Stefan Kooths, responsible for macroeconomic studies. The coronavirus has caused many obstacles to international trade on which the German economy depends so much, now more aware than ever of domestic consumption. But even if consumption still shows worrying symptoms for pandemic reasons, also in the IfW they agree to affirm that “the worst of the crisis is behind us”.


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