Federal Economy Minister Peter Altmaier (CDU) wants to spread optimism, but remains cautious. On Thursday, he was able to announce that the German economy contracted by five percent in the first year of the Crown. That’s less than the federal government last expected – officially expected minus 5.5 percent.
But as will go in 2021, the minister did not want to commit to a certain number. In the autumn forecast in October, he expected growth of 4.4 percent. He now said, “Growth will be clear and noticeable.”
It is not clear how the current lock will end because its duration is open. Altmaier did not commit even on Thursday. He said the pandemic would be a challenge in the next few months.
Currently, the still high number of infections and deaths has put enormous pressure on negotiations. The aim is to use state aid measures to protect the German economy from “irreversible loss of substance”.
Less negative than in the financial crisis
The 5% drop in gross domestic product (GDP) measured by the Federal Statistical Office remained below the level of 2009, when the financial crisis had the greatest impact. At that time, GDP in Germany fell by 5.7 percent. The national debt subsequently rose to more than 80 percent of GDP, in the corona crisis the government now expects an increase to more than 70 percent.
In total, the state had to borrow about 158 billion euros in new loans last year to offset the tax collapse and finance support measures and economic stimulus programs for the economy. The deficit thus increased to 4.8 percent of GDP.
Significant reduction in consumption
However, unlike the financial crisis, private consumption fell last year – by six percent, according to the Federal Statistical Office. There has never been such a decline in the history of the Federal Republic of Germany. The sectors of the economy that grew in 2020 were construction and e-commerce.
In contrast, consumer exclusion and restraint have led to a “historic decline in the hospitality sector”, according to a report by statisticians. The entire area of trade, transport and hospitality decreased by 6.3 percent.
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The 5% decline in 2020 is partly based on estimates, as the final figure for economic output in the fourth quarter will not come until the end of January. However, the Federal Statistical Office expects stagnation compared to the third quarter. The estimate is full of great uncertainty.
The second lock is less significant
The economy was “obviously less hit hard” by the second deadlock at the end of the year than the first in the spring. After the end of the blockade in 2021, there could be a similarly strong economic recovery as after the first blockade in 2020. Altmaier also assumes that the second closure in November and December will have less of an impact than the spring one.
The statistical office sees a good chance of a strong recovery after the end of the current lock-in. “I hope there could be a similar recovery as last year,” said Albert Braakmann, who heads the economic department in Wiesbaden.
Will the high savings rate dissolve?
In particular, private consumption is likely to increase sharply, as many citizens have kept their money together in 2020 and now. The savings rate climbed from 10.9 percent in 2019 to a record 16.3 percent. For every € 100 of disposable income, households put an average of € 16 in their accounts.
The fact that the Minister of Economy expects that part of the German economy will remain in the red for 2021 shows his wording that the economy will experience growth “in equilibrium” again this year. This should also help the government to provide “great dynamic support” to sectors of the economy that are in international competition – the Minister mentioned in particular all areas of digitization and use of hydrogen.
Altmaier denies the allegations
Altmaier has denied allegations that the government has changed funding criteria to the detriment of companies affected by the lock-up following the launch of an application for November support. The minister said the aid would only cover “uncovered fixed costs” in an instruction to applicants, tax advisers or lawyers on 20 October.
As part of the November support, approximately 300,000 applications were submitted in a total volume of approximately five billion euros. Of this, 1.5 billion have so far escaped as reserves. Final approvals are also valid from Tuesday. Altmaier expects an outflow of three to four billion euros by Easter. For December support, we expect final payments to begin in two to three weeks.