bpb.de: What impact has the pandemic had on the economy?
Geraldine Dany-Knedlik: At present, two factors in particular are discernible: Firstly, the increasing number of sick and dead people is minimizing the supply of labour. The second and more important factor from an economic perspective is the measures adopted by many countries to contain the pandemic.Geraldine Dany-Knedlik ( © DIW / Florian Schuh)
Dr. Geraldine Dany-Knedlik is a research associate in the Macroeconomics and Business Cycle Policy departments of the German Institute for Economic Research (DIW Berlin). © ( DIW / Florian Schuh)
Dr. Geraldine Dany-Knedlik is a research associate in the Macroeconomics and Business Cycle Policy departments of the German Institute for Economic Research (DIW Berlin). © ( DIW / Florian Schuh)
For example, there are massive restrictions in the event industry, gastronomy and travel, but the production of goods can also be directly affected by the measures. If, for example, the safety distance cannot be maintained in production facilities, they must change their production processes or close them temporarily. Disruptions to international supply chains can further weaken domestic production. If employees cannot work at home due to a lack of technical possibilities, or if they have to look after minor children there, this can also lead to a loss of work.
It is also difficult to predict how long restrictions on households and businesses will last, and what economic and social processes will result. This leads to household reluctance to buy and less investment by companies. As a result, the overall economic Internlink: Demand continues to fall.
In principle, it can therefore be assumed that there will be a decline in economic output of at least six percent in Germany this year. World trade is also expected to decline by 15 percent this year. For comparison: In the Interner Link: Financial and Economic Crisis 2008/ 2009, the External Link: World Trade collapsed by around eleven percent in 2009. The economic consequences of the corona crisis for both Germany and the global economy are therefore likely to be much stronger.
What distinguishes the current crisis from the financial and economic crisis of 2008/2009?
The crisis of 2008/2009 had its origins in the financial and banking sector. Due to bad loans, banks were able to lend less to companies, which led to losses for companies during the crisis. This then had real economic effects.
The current crisis has its origins in the real economy. The epidemic policy measures and the increased loss of work lead directly to real economic losses. Companies can produce less. At the same time, there is less demand. The loss of income for companies and households is in turn transmitted to the financial markets.
What interactions can be observed between the financial markets and the real economy?
In the current crisis, we are dealing with very clear internal link: price losses on the international stock markets that are faster than during the financial and economic crisis of 2008/2009. This is likely to burden the Interner Link: Liquidity position of companies and thus also exacerbate real economic problems. Large companies are partly financed by the stock market, leaving them less money to invest when stock values are falling, while at the same time the economic outlook for companies has deteriorated.
The latter is also a problem for small and medium-sized enterprises, which make up the majority of all companies in Europe and Germany. This is because the deteriorating macroeconomic outlook and containment measures are likely to increase the risk of default on corporate loans. To compensate for this, banks make it more difficult to lend to healthier companies, for example by charging higher interest rates or issuing a lower volume of loans. For example, the actual defaults and the increased risk of default are weighing on lending to companies, especially in the heavily affected Interner Link: Industries.
Is it already possible to say whether there will be economic winners and losers from the crisis?
Temporary increases in profits are still possible. For example, an increase in sales can currently be observed at the online mail order company Amazon. However, since many people are on short-time work and there are clear signs of rising unemployment in Germany, demand will weaken to such an extent that this effect will be compensated for in the medium term. Therefore, we in the economic department of DIW Berlin assume that no industry will emerge as a winner from the corona crisis in the long term. This is also indicated by the fact that since the end of February 2020, there has been no sector-specific increase in Internlink: Stock Indices in Europe, even in potential profit sectors, such as healthcare and media telecommunications.
How did Germany react to the crisis?
The Interner Link: Germany’s fiscal response is unprecedented in post-war history. This can be seen in particular in the measures which, in addition to Interner Link: Changes to short-time working allowances , form the core of the current Externer Link: Hilfspaket der Bundesregierung:
Self-employed, freelancers and small companies with up to five or ten employees receive a one-off subsidy of 9,000 or 15,000 euros, which does not have to be repaid. The self-employed also receive easier access to basic security, so the asset check is suspended in the first six months. This package of measures amounts to around 50 billion euros.
The Interner Link: As a public-law credit institution, KfW Bankengruppe has launched a special programme for loans to companies that are now experiencing liquidity bottlenecks due to containment measures. The German government has approved a guarantee framework of around 460 billion euros for this aid package. This means that companies can apply for loans from KfW via their house bank and liability for these is largely assumed by the public sector via KfW.
In addition, the federal government has established an external link: Economic Stabilisation Fund with a total volume of around 600 billion euros. Guarantees and equity assistance are intended to ensure the solvency of companies and facilitate lending. This fund is aimed primarily at larger companies with 250 or more employees.
In order to relieve companies and self-employed persons of tax burdens, auxiliary measures such as a refund and adjustment of tax advances, Internal Link: Deferral of tax payments and the suspension of enforcement measures until the end of 2020 have been introduced.
And what about at EU level?