Consequences of the lockdowns: Institutes lower economic forecasts


Status: 03/24/2021 10:39 a.m.

According to the Advisory Council, the Ifo Institute and the Institute for the German Economy now have less confidence in the German economy in 2021. The costs of the corona crisis are likely to devour hundreds of billions of euros.

New lockdowns and sluggish vaccination campaigns: That doesn’t leave the German economy indifferent either. Experts are therefore increasingly forced to adjust their economic forecasts – downwards.

The ifo Institute is only expecting growth of 3.7 percent for the current year. Three months ago it had predicted an increase of 4.2 percent. For the year 2022, the Munich experts now expect 3.2 percent growth instead of 2.5 percent. “The corona crisis is dragging on and postponing the expected strong upswing,” says Ifo economic director Timo Wollmershäuser.

It can be even more pessimistic

The Munich institute is therefore more pessimistic than three months ago about the economic outlook for the German economy. But his current forecast is still much more optimistic than, for example, that of the Advisory Council on the assessment of macroeconomic development.

The “economic wise men” announced a week ago that they were only expecting an increase in gross domestic product (GDP) of 3.1 percent for 2021.

The Institute of the German Economy (IW) is also more pessimistic about the future and only forecasts GDP growth of 3.0 percent for 2021, as does the employer-related institute. In the fall, the IW was still assuming an increase of 4.0 percent.

That’s how high the lockdown costs are

The IW researchers warn of a long third lockdown, which would be an expensive setback for entrepreneurs and retailers. “So far, the lockdowns have already cost 250 billion euros,” says IW Director Michael Hüther.

Ifo expert Wollmershäuser is now assuming costs of 405 billion euros for the corona crisis for the years 2020 to 2022 – measured in terms of lost economic output.

Social consequences of the lockdowns

This is not without consequences for the state budget deficit: This will swell further to 4.7 percent of GDP in 2021. In 2022, the deficit ratio is likely to be around three percent of GDP, but adhering to the debt brake will be very difficult.

The lockdowns not only have consequences for public budgets, but also for society: the division of the economy into a robust industry and starving lockdown sectors would go deeper and deeper and have far-reaching social consequences, warns Hüther.

IW director Michael Hüther warns of the consequences of the lockdowns.

In this context, the IW experts also refer to the increasing proportion of long-term unemployed, which makes it difficult to reduce unemployment quickly in Germany.

Division of the national economy

The German economy is experiencing an increasing split in the pandemic – between industry and consumption, supply and demand: industry is gradually catching up to pre-crisis levels and is again exporting briskly to China and the USA. The service sector, on the other hand, is largely at a standstill, emphasize the IW experts. Private consumption will stagnate in 2021 due to business restrictions after collapsing six percent in 2020.

The economy is also divided globally: While China and the USA are recovering much faster from the corona slump and supporting the global economy, the euro area, in which the third wave of infections is particularly raging, is weakening.

It is now about vaccination

According to the IW, the hoped-for upturn in the second half of the year now depends on the success of the vaccination campaign. There is currently a race between injections and infections, underlines IW Director Hüther. “We have to vaccinate quickly to forestall possible resistance through mutations.”

The heading of the IW paper could therefore also be understood as a request to politicians: “Vaccinate for the upswing”.

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Consequences lockdowns Institutes economic forecasts


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