Huge damage
Corona hits the German economy so hard
01/23/2022 10:29 am
The consequences of the corona pandemic on the German economy are severe. The IW Cologne estimates the damage at hundreds of billions of euros. Above all, the drop in consumption has added to companies.
The corona pandemic has caused huge economic damage in the past two years. The Institute of German Economics (IW) in Cologne comes to the conclusion in an analysis that the loss of value added is around 350 billion euros. A large part of this is due to losses in private consumption, partly due to lockdown measures. The added value is the economic performance provided in individual areas.
Even if the pre-crisis level of gross domestic product were to be reached again by the end of 2022, there would still be a “significant gap” in economic performance compared to if the pandemic had not existed, according to an IW short report. “Only with strong economic growth in the next few years can the gaps in value creation and income caused by the pandemic be closed bit by bit.”
The federal government expects weaker economic growth in Germany this year. As the German Press Agency learned from government circles, the government now expects gross domestic product to grow by 3.6 percent. In the fall, the previous government still expected growth of 4.1 percent this year. The forecast is part of the annual economic report, which is to be decided in the cabinet on Wednesday.
In 2021, the German economy had grown again with 2.7 percent growth. However, the growth in gross domestic product reported by the Federal Statistical Office based on the first figures was lower than long hoped for. In the crisis year 2020, economic output collapsed by 4.6 percent.
Above all, lockdowns and interrupted supply chains and production outages in spring 2020 after the outbreak of the pandemic had slowed the economy. Politicians had therefore decided on aid measures worth billions to mitigate the consequences for jobs and companies.
Big losses
According to the IW model calculation, losses in private consumption in Germany totaling 270 billion euros are likely to have occurred over the past eight quarters. The author of the analysis, Michael Grömling, explained that “behavioural changes” had also occurred in private consumption. This means that even if cinemas, theaters and restaurants were open again, many citizens would still have avoided going to the cinema or restaurant out of caution.
This is one of the reasons why the savings rate of private households increased significantly during the pandemic – in other words: consumers put money on the high edge. The annual report of the “Wirtschaftswise” said that if pandemic-related restrictions or longer-lasting supply and capacity bottlenecks are overcome more quickly, the “pent-up” consumer and investment demand could ensure a more dynamic upswing.
Because significantly less was invested during the pandemic. According to the IW study, there were “noticeable failures” in the so-called gross fixed investments, for example in machines. If the pandemic had not existed, total investments in Germany over the past two years would have been around 60 billion euros higher in real terms. This has a long-term slowing effect on economic development.
According to the IW, the losses in private consumption and investments are counteracted by strong impulses from state consumption – as a result of economic stimulus packages and additional spending caused by the pandemic. Exports also provided noticeably positive economic impetus. Nevertheless, the loss of value added amounts to almost 350 billion euros. There will also be considerable losses in the coming quarters – compared to a pandemic-free period. The losses could amount to a further 50 billion euros in the first quarter of 2022 alone if there were significant impairments in economic life as a result of the Omicron wave.