recession 2020

Recession 2020 In Germany:

Shops closed, factories stopped, supply chains interrupted. How badly is the corona crisis affecting the German economy? A special report on the economic methods gives little cause for optimism.

The Council of Experts for the Assessment of Macroeconomic Development believes that the corona pandemic will have a major impact on the global economy.

How severe the downturn will be in 2020 and 2021, according to the so-called economic practices, will depend on the development in the coming weeks: how long and to what extent the restrictive health policy measures will last and how quickly there will be a recovery afterwards.

In the scenarios described, the spread of the coronavirus abruptly ends the emerging economic recovery, so that a recession in Germany in the first half of 2020 will be unavoidable.

In the baseline scenario, the Council of Experts expects average gross domestic product growth of minus 2.8 per cent in 2020. In 2021, GDP could then rise again by 3.7 per cent.

According to the most probable scenario from the researchers' perspective, the economic situation normalizes again over the summer.

However, if large-scale production shutdowns or longer-term health policy measures become necessary, GDP should shrink by 5.4 per cent this year. In 2021, catch-up effects could cause GDP to grow by 4.9 per cent.

A long-lasting crisis is likely to follow if health policy measures continue beyond the summer and the economic recovery will not start until 2021.

The measures taken by politicians may then not be enough to prevent profound impairments to the economic structure.

Worsening financing conditions and solidified uncertainty could also slow investments and lead to reluctance to buy among households.

In such a scenario, growth in 2020 would be minus 4.5 per cent. In 2021, economic output would only grow very slowly at 1.0 per cent.

Lars P. Feld, the Chairman of the Expert Council, explains the widespread of the forecast with the extreme situation to which the economy is currently exposed.

In the first place is the protection of health and thus the goal of taking good care of the sick and effectively limiting the spread of the virus.

Sufficient financial resources should be made available to the health system and human reserves and emergency capacities activated.

Feld also emphasizes that educating the population about how to proceed is extremely important.

"A communicated normalization strategy can stabilize the expectations of companies and households and reduce uncertainty."

Clear communication also helps to reassure the players on the financial markets.

If the euro area Member States send a clear signal that they can now make additional fiscal resources available through existing instruments such as the European Stability Mechanism (ESM), they can stabilize expectations in the financial markets.


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