German government expects pandemic to unleash heavy recession

By Andreas Hoenig and Theresa Muench, dpa
Berlin (dpa) – The German government is expecting a heavy recession this year and a jump in the number of unemployed people due to the strain of the coronavirus pandemic on the country’s economy.

“The labour market is coming under intense pressure,” according to the government’s spring forecast, which was presented on Wednesday by Economy Minister Peter Altmaier.

Germany’s workforce is expected to lose around 370,000 people this year, with hotels, retailers and business services expected to be hit hard.

The health crisis is expected to cause Europe’s biggest economy to shrink by 6.3 per cent in 2020, the government says.

This decline would be even worse than what was seen during the global financial crisis more than a decade ago.

The country will then begin to recover in 2021, when 5.2-per-cent economic growth is forecast.

Altmaier said that the government’s short-time work scheme – which steps in to pay workers whose employers no longer have work for them to do – will have to cover unprecedented levels in March and April in order to prevent mass lay-offs.

Unemployment during the whole of the year is anticipated to come in at 5.8 per cent. In March, it stood at 5.1 per cent – although the effects of the current crisis were not illustrated in that month.

Altmaier stressed that the goal was to protect core industries and to get as many companies through the crisis as possible.

However, he warned that efforts to gradually reboot the economy after several weeks of sweeping restrictions and closures must be carefully applied, so as not to risk a second wave of infections.

“After all, we can only start a slow recovery in the second half of the year if we bring economic and social life up to speed with a sense of proportion,” he said.

The coronavirus measures are expected to take their toll on the country’s second quarter performance, in particular.

As Altmaier presented the government outlook, the Federal Statistical Office (Destatis) reported Germany’s lowest monthly inflation rate since November 2016.

Inflation fell to 0.8 per cent on the year in April, pushed down by the coronavirus crisis and falling demand for oil.

The spring forecast lays the foundation for Germany’s fiscal estimates in May, with tax revenues expected to take a hit from the current crisis.

Finance Minister Olaf Scholz is planning to take out 156 billion euros (169.5 billion dollars) in new debt in the otherwise fiscally conservative country.

The German government has already made available billions of euros in aid for businesses, and has promised to broaden the safety net if need be.

On Wednesday, cabinet ministers signed off on plans to expand short-time work, with the state now covering 80 per cent of salaries under the scheme. Parents with children at home will get 87 per cent.

The state aid had previously covered 60 per cent of pay or 67 per cent for parents.

But criticism of the government’s response is growing increasingly louder, with business leaders warning in an urgent letter sent to Chancellor Angela Merkel’s office of the “demise” of companies and appealing for a clear signal that the economy would be brought back up to speed soon.