German economy hit harder than foreseen

The Covid-19 pandemic is causing deeper wounds in the German economy than anticipated in spring, the country’s five major economic research institutes say in their joint autumn forecast.

The institutes are now forecasting a drop in GDP by -5.4%, rather than the -4.2% they assumed in spring. Looking further ahead, they believe in an upswing of 4.7% in 2021, and by 2.7% in 2022. However, the figures might not take into account the recent resurgence in Covid-19 infections, Kallanish notes.

The industries that put the hardest brake on a recovery are those that are based on social interaction, like restaurants, bars, tourism, events, and aviation. Slowing momentum also comes from capital goods industries that have become averse to investment because of lower liquidity. Exports dipped most dramatically in the wake of the crisis, the experts note. “The C-19 effect on the production potential remains critical because long-term damage can be hardly assessed,” they write.

They concede that the uncertain trajectory of the pandemic remains the biggest risk for the forecast. At the time of the compilation of the data, the institutes assumed a record loss for the public budget of €183 billion ($215 billion) this year.