An economist at Germany's Ifo Institute for Economic Research has said that the impact of the coronavirus outbreak could shrink the country's economy by as much as 20%, as business morale crashes to its lowest level since the global financial crisis in 2009.

Germany
The catastrophic forecast came as lawmakers in Berlin were discussing an unprecedented rescue package of over €750-billion on which the government is urging parliament to suspend the debt brake enshrined in the constitution.
Ifo's final survey results showed that the business climate index - a well-respected indicator of the state of the German economy - has slumped to 86.1 from 96.0 in February.
“This is the steepest fall recorded since German reunification and the lowest value since July 2009,” Ifo President Clemens Fuest said in a statement.
“The German economy is in shock,” he said, adding that business expectations has darkened like never before, and companies' own assessments of their situation had worsened greatly.
The business climate indicator posted the steepest drop in the services sector since 2005 - when data was first collected.
In manufacturing, the index fell to its lowest level since August 2009 with the expectations sub-index posting the steepest drop in 70 years of industrial surveys.
Klaus Wohlrabe, an Ifo economist, told Reuters that the German economy could shrink by between 5% and 20% this year, depending on how long the shutdown continues.
He added that he expected a severe recession for at least two quarters.
Carsten Brzeski, an ING economist, said that the term "recession" was not itself adequate to describe the situation whereby an entire economy came to a virtual standstill overnight.
“The longer the lockdown lasts, the more the size of the contraction will resemble numbers normally only seen in emerging economies. Simply unprecedented,” he said.
The German government has said its expectation is that GDP will shrink by around 5% this year due to the coronavirus outbreak.
The country's finance minister Olaf Scholz asked lawmakers in Berlin to suspend the debt brake, which restricts new borrowing to 0.35% of GDP, so the government could fight the coronavirus pandemic with "full force".
It is expected that the Bundestag lower house will pass the rescue package later today. The package include a debt-financed supplementary budget of €156-billion and a stabilisation fund of €600-billion for loans to struggling businesses.
It is possible that the German government will take direct stakes in companies.
Justice Minister Christine Lambrecht told the Handelsblatt business daily these could be partial or full if needed, to prevent the sell-off or break-up of key companies during the crisis.
Back to Homepage
Back to Politics & Economics