Wirtschaftsweiser sees risks: Field: Third wave threatens the economy

Sunday, February 21, 2021

Wirtschaftsweiser sees risks
Feld: Third wave threatens the economy

The increasing spread of the virus variants is putting a brake on the cautious optimism of the economy and causing the Council to revise its economic forecast downwards. The chairman Lars Feld is now urgently warning of the economic consequences of a third wave. Then all plans would be "obsolete".

The chairman of the economy, Lars Feld, sees great risks for economic development and has dampened the expectations of companies about opening plans. Feld told the German Press Agency: "You can make all sorts of plans. But if a third wave comes, these will be invalid." The virus variants are a general uncertainty that also has an economic impact.

Feld is currently concerned about the border controls that permanently limit production in the manufacturing sector.

(Photo: picture alliance / dpa)

Feld announced that the German Council of Economic Experts will revise its economic forecast for the current year downwards. In the forecast presented in November, the economic experts assume that the gross domestic product will grow by 3.7 percent in 2021. In March the Council will publish its updated economic forecast.

"At the moment we can no longer be as optimistic as we were in November," said Feld. "A 3 before the decimal point is still possible if further border controls are avoided and there are gradual openings after the lockdown. Then there can be strong growth from the second quarter."

However, Feld continues to see major risks for economic development. "If the virus variants continue to spread and there is a third wave, all forecasts are wasted." To do this, one has to wait and see how successful the vaccinations were. After a 5 percent slump in economic output last year, the federal government is expecting gross domestic product to grow by 3 percent in 2021. This is less than previously expected.

"Manufacturing is still doing well"

Feld said he could of course understand the desperation some companies felt about the length of the lockdown and the lack of perspective. "Overall, there is a huge range in the economy. The hard hit industries are now in the foreground. Manufacturing and construction are currently still running relatively well. Because of the border controls in areas with virus variants, there is a risk of interrupting value chains . That would hit manufacturing hard. "

The lockdown with the closure of restaurants and many retail stores was recently extended by the federal and state governments to March 7th. Chancellor Angela Merkel and the prime ministers of the federal states want to discuss how to proceed on March 3rd. Business associations are vehemently calling for an opening plan.

The fact that the Advisory Council has so far been more optimistic in its forecast than others has to do with developments in manufacturing and construction. But Feld said at the same time: "If the border controls should spread even further, then the same problem will arise as last spring, because the manufacturing sector would then no longer be able to produce to the same extent. There are border controls to the Czech Republic, for example – an important production location also for German companies.

Praise and criticism of politics

Feld said politicians had taken the right measures overall during the crisis, with tax loss carry-backs having to be extended to two years and too much bureaucracy in bridging aid. At the same time, however, he criticized that past failures had to be paid dearly, especially the arrears in the digitization of schools and public administration. "You would have had to work much, much more intensively on it in the summer. There is a lot of catching up to do."

Feld's term expires in late February. According to reports, efforts are being made in the SPD to replace Feld with another economist because of his economically liberal views. The five-person council of experts for assessing macroeconomic development advises politics. The experts are colloquially referred to as the "economic wise men".