Is the upswing in danger ?: "The pandemic remains the greatest risk"


The shock in spring: The fight against the virus triggers a record slump. Then the relief: the economy is recovering faster than expected. But: The number of corona cases is increasing, the restrictions are increasing again. Is the hoped-for recovery in the form of a V after the spring crash in jeopardy? "The German economy is better prepared," says Berenberg Bank's chief economist Holger Schmieding The medical situation should "not worsen" now. In the past few weeks, economic experts have repeatedly revised their forecasts upwards. Hopes that Germany will quickly work its way out of the corona hole are currently receiving a damper. V, U or W is the question: do we have to worry?

Holger Schmieding: No letter hits it. A tick fits best. After a dramatic slump in March and April the economy recovered rapidly from May onwards, if not entirely in the form of a Vs. Consumers in particular liked to go shopping again. After this first big push, the pace slows down. However, there are currently no signs of a U, i.e. a long bottom, or a second recession in the sense of a W.

In numbers, how quickly is the German economy catching up?

April was terrible. A significant part of the economy was simply shut down by lockdowns. The mere fact that there was no comparable month in summer will result in a sharp increase in economic output outto press. We expect the German economy to be able to make up at least 60 percent of the losses of the previous quarter in the third quarter. Even if the growth will be significantly lower thereafter, it should have made up around 80 percent of the slump compared to the first quarter by the end of the year.

Isn't that a very optimistic scenario given the developments we are seeing right now?

The pandemic continues to represent the greatest risk. If the medical situation were to worsen to such an extent that large parts of the economy had to be frozen again, we would face a second recession. It doesn't look like that at the moment. Instead, we experience that, despite the higher number of infections, there are far less severe courses than in March and April. Therefore, smaller restrictions will probably suffice. Smaller family celebrations, hardly any fans in the football stadium, stricter mask requirements, more vacation on balconies. All of this is annoying. But it only hits small parts of the economy.

In some parts, however, the situation looks quite desperate.

The German economy is far better prepared. The pandemic is no longer as big a shock as it was in March. Unfortunately, some areas will be hit hard by the fact that some restrictions will have to be tightened again instead of being relaxed. Aviation, entertainment, inner-city hotels, trade shows are the obvious examples. But most of the economy are likely to come through the second wave with only minor wounds. Many companies have reserves. And all in all, monetary and fiscal policy as well as the supervisory authorities have set the right course.

How dangerous is the development abroad, for example in France or the USA, where extensive German exports are going?

In the USA, the second wave of the pandemic has already subsided. The US economy is recovering rapidly. In spite of the current dispute in the US Congress, an expansive fiscal policy is also contributing to this, which will probably cause the deficit in the US budget to skyrocket to a staggering 16 percent of economic output this year compared to a less spectacular 9 percent in Germany. The export to the USA gets underway. France has also recovered rapidly since May. Here, however, we have to be prepared for the fact that the increase in infections will slow down the dynamic in the coming months. In contrast, exports to China are increasing rapidly. The People's Republic got the pandemic under control relatively quickly – after serious mistakes in the early days. As usual, it is also supporting its domestic demand with substantial loan programs.

Political risks abroad are sometimes forgotten about the pandemic. What role do they play in recovery?

Keywords are the elections in the USA, the tensions between the USA and China and the tiresome issue of Brexit. In the US, Trump's chances of re-election are around 40 percent. Should he want to start the trade war against Europe after a re-election, which he has always threatened with, that would hit the German economy. We have to keep an eye on that, at least as a risk. We are so used to the risk of a hard Brexit that such a British crash landing at the end of 2020 – unlike across the English Channel – would probably only cause limited damage to us.

Let's try to determine where we are. How does it go on in concrete terms?

The first stage we have behind us. Retail recovered quickly from May to July. in the second stage, which should last until the end of 2020, is now followed by production and cross-border trade in goods. Industry and foreign trade are currently shaping the scene. in the third stage In 2021 and 2022, the currently very cautious investments by companies will then pick up again. In addition, there is a swing in fiscal policy. This year – in the acute crisis – it was mainly about a kind of survival aid for employees and companies.

Holger Schmieding is chief economist at Hamburg's Berenberg Bank.

And what changes with this "pan"?

The state invests more and hires more people. That sustains the economy. When the German economy has reached the pre-crisis level again at the beginning of 2022, the pace of growth in this is likely Phase four remain above the long-term average of around 1.5 percent per year for a few years. The loose monetary and fiscal policy are having an impact. There is also a certain amount of catching up to do in terms of corporate investments. Even for the reorganization of supply chains, machines are still needed at the new locations. Whether the upswing actually goes like this naturally also depends on economic policy.

… and then "normal" conditions prevail again?

Almost normal conditions should set in around the second half of 2021, with the Unemployment will probably not have fallen back to the low level of early 2020 until the end of 2022. However – what does normal mean? The world is always changing. It won't be quite the same as before. Crises often accelerate developments that have already become apparent. This includes the trend towards the digital economy and more flexible working with more home offices. The realignment of supply chains, which has already started, will also accelerate. China is no longer a cheap supplier and is also proving to be politically problematic.

Diana Dittmer spoke to Holger Schmieding

. (tagsToTranslate) Economy (t) Economy (t) Economic forecasts (t) Corona crisis (t) GDP (t) German export