Why we should expect a much stronger recession in Germany in 2020 than widely believed

Michael Frenkel () and Haiko Stefan

No 20-03, WHU Working Paper Series - Economics Group from WHU - Otto Beisheim School of Management

Abstract: We examine the effects of the COVID-19 pandemic on the economic decline expected in Germany in 2020. The magnitude of the economic slump that will occur in 2020 depends on the extent of the slump during the shutdown, on the point in time, at which a significant easing of shutdown occurs, and on the length of adjustment process towards the structures that prevailed before the pandemic. We derive several scenarios and find that the shutdown will only remain in the single-digit percentage range if we apply very optimistic assumptions about the extent of the initial decline in GDP during the shutdown and the speed of adjustment after opening up of the economy. However, assuming that the economic crisis cannot end before the medical crisis ends, which medical experts project not to happen before the end of 2020, such optimistic assumptions do not appear realistic. Hence, we find it more likely that the percentage decline of GDP in Germany will be two-digit in 2020. Our findings are in contrast to the growth projections recently issued by the German Council of Economic Experts or by the Federal Ministry of Economic Affairs and Energy of Germany.

Keywords: COVID-19; Recession; Germany (search for similar items in EconPapers)
JEL-codes: E01 E20 E37 O52 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2020-05-01
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:whu:wpaper:20-03

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