Prof. Almut Balleer on Damage to the German Economy Caused by COVID-19

28/08/2020
 

In an article published on August 25, 2020 by the Süddeutsche Zeitung newspaper, Prof. Almut Balleer, head of the School's Chair of Applied Economics, talked about the damage that the COVID-19 pandemic has caused to date for Germany's GDP:

The belief that the pandemic will have seriously affected the German economy has now been officially confirmed by economic data from the country's Federal Statistical Office. In the second quarter of 2020, the economic downturn of 9.7 percent is the highest ever since the end of World War II. But measures of the social state, such as the "Kurzarbeit" scheme [similar to UK's "furlough"] have significantly softened the blow to the economy that the pandemic has dealt. According to Almut Balleer, whose research focuses on macroeconomics, applied econometrics, and labor economics, "A large increase in unemployment particularly at this time would pose a great threat to the German economy". Similarly to many other economists, Prof. Balleer is in favor of the current measures "even if some jobs are being temporarily artificially supported".

The latest economic indicators suggest a certain economic recovery. As Prof. Balleer says, "The decisive factor is how quickly the economy will recover, since the pandemic is slowing down consumer demand as well as the possibility of firms to offer their products (e.g. on account of disrupted supply chains). The data from various studies sugest that the drop in demand has exceeded the initial supply shock, according to Prof. Balleer. "In Germany the domestic demand is our biggest problem at the moment".

In the case of a demand shock, many economists recommend that the government should intervene and generate the missing demand. This did occur in Germany in the form of a stimulus package. In Prof. Balleer's opinion, "That was the right decision at the time". However, the timing of implementation for government measures like this is crucial. "In light of an impending second wave - with all its related negative economic consequences, the billions of Euros could be gone in a puff of smoke", says Almut Balleer, because then the demand which has been strongly pushed by the government would encounter a new supply shock.

Policy makers, researchers, and firms will find out at the end of October whether the stimulus package has worked. The Federal Statistical Office will then be releasing its first estimation of the economic performance in the third quarter of 2020.

You can read the whole article in German here.

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