The government expects a serious recession – “deep cuts”

Berlin (Reuters) – Germany faces its worst post-war recession due to the koruna pandemic.

German Economy Minister Peter Altmaier gives a speech at a session in the lower house of the German parliament, the Bundestag, on the outbreak of the coronavirus disease (COVID-19) in Berlin, Germany, March 25, 2020 REUTERS / Axel Schmidt

Gross domestic product may contract even more this year than during the 2009 financial crisis, Federal Economy Minister Peter Altmaier said in Berlin on Thursday. At that time, the economy collapsed by 5.7 percent. “This means that, after ten good years of economic growth, we will experience a recession for the first time this year,” said the CDU politician. In January – that is, before the outbreak of the pandemic – a further increase of 1.1 percent was expected.

“We must expect deep cuts in economic growth this year,” said Altmaier. “At this point, it would be irresponsible to give a specific number.” In their special report on the corona crisis, economic experts estimated the economy would collapse by 2.8 to 5.4 percent. The forecast is still “quite optimistic,” said Marcel Fratzscher, president of the German Institute for Economic Research (DIW). “Nobody can give you reliable numbers. However, I am afraid that this crisis will be economically more severe for Germany than the global financial crisis, said Fratzscher.

BOTTOM EXPECTED IN MAY

According to Altmaier, Europe’s largest economy performed fairly well in January and February. “But then, in March, the crisis made its first impression,” said Altmaier. The bottom is likely to be reached in May. “We assume economic growth may decline by more than eight percent in individual months in the first half of the year.” However, there is reason to hope that the economy will pick up again in the second half of the year and that then sane growth will be achieved again.

Altmaier stressed that the recession should be fought with already completed aid packages worth hundreds of billions of euros. “We want it to be overcome as soon as possible,” said the minister. Once the crown pandemic is overcome, the economy must be able to restart. Then the economy and wages would grow again. “We need a fitness program for this,” said Altmaier. The federal government is working on such an economic stimulus package.

Federal Finance Minister Olaf Scholz has advocated investments as soon as the burden of the coronavirus epidemic recovers. Above all, it must be a question of overcoming the health crisis and securing jobs and businesses. You want to make sure that “if things go up again, it will also be supported by economic measures,” said the SPD politician. “Then we want to pursue a policy where high investment is important and where the welfare state is expanded, not curtailed.”

KFW EXPECTES LOSSES

The state-owned development bank KfW is gearing up for a sharp increase in loan demand for kroner assistance. The head of KfW, Günther Bräunig, believes that the total value of EUR 50 billion is realistic. As much as EUR 100 billion cannot be ruled out. From next week, the loans for which the state bears most of the default risk will be repaid. At KfW itself, the corona crisis is already making deep holes in the balance sheet. The management expects a loss of nearly a billion euros in the first quarter.

According to the Robert Koch Institute, 73,522 people in Germany have been infected with the new virus so far. So far, 872 people have died from it. To prevent the rapid spread and thus overload of the healthcare system, exit restrictions were issued. For example, it slows down consumption as thousands of stores have to remain closed. The pandemic also disrupted companies’ supply chains while foreign demand collapsed.

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