Act calmly - create trust

Nationwide contact blocks were imposed in mid-March. Public life came to a complete standstill; schools and universities closed. Events and concerts cancelled. Gastronomy businesses had to close - except for home-delivery service. Only the most important shops for everyday needs remained open. Those who could make it happen, worked from home. 'Social Distancing' was being used in German. A distance of 1.5 meters has become the norm in public spaces. And the citizens went along. The federal government communicated intensively and early on about the COVID-19 outbreak. The Robert Koch Institute provided daily information. Johns Hopkins University figures were also published daily. Politicians who acted calmly as well as scientifically explanatory helped to convey the seriousness of the situation correctly. In any case, citizens wanted to avoid overloading the health system. The flattening of the COVID-19 patient curve was the goal and it was achieved by summer.

Against the background of very low numbers of new infections and a health system that is now well equipped, the Federal Government and the federal states have started to gradually reduce contact restrictions and opening up public life since the end of April. While the drastic measures to control the pandemic have been rolled out nationwide, the process of opening up is now controlled much more by the federal states. On May 6, the federal and state governments agreed that the federal states are now responsible for relaxing the corona restrictions. From now on, the countries themselves will decide on their respective easing measures adapted to regional needs and general conditions and keeping an eye on the COVID-19 infection numbers.

The most important rules and easing measures as of May 6, 2020: Mouth-nose protection:

• Wearing mouth-nose protection in parts of public spaces and public transport is mandatory.
• The federal states regulate details regarding the abolition of the mask requirement.

Contact restrictions:

• Contacts should be kept low and constant.
• A minimum distance of 1.5 meters must still be maintained.

Retail:

• All stores nationwide are allowed to open.
• In the shops strict requirements resp. hygiene, control of access and avoiding queues must be met.
• A maximum number of customers and staff is specified based on the respective sales area.
• The wearing of mouth and nose protection remains mandatory.

Gastronomy and tourism:

• Common hygiene and distance concepts must be maintained.
• Further regulations are a matter of the state.

Requirements for employers:

• Companies in the service sector and in industrial production are encouraged to avoid unnecessary contacts in the workforce and with customers.
• General hygiene measures must be implemented.
• See also SARS-CoV2 occupational safety standard of the Federal Ministry of Labor and Social Affairs (as of April 2020)

The federal and state governments have agreed on a hard upper limit for new infections which applies nationwide and from which more severe restrictions must apply. The federal states must ensure that a consistent restriction concept is immediately implemented in counties or independent cities with more than 50 new corona infections per 100,000 inhabitants within the past seven days. It is therefore necessary to react regionally with restrictions immediately. A new lockdown for the whole country is to be avoided in this way. The federal states are responsible here.

Appropriate measures have now been taken in North Rhine-Westphalia, where the number of new infections in a slaughterhouse rose rapidly to more than 1,500. For the affected districts of Gütersloh and Warendorf, contact restrictions were introduced as in March. Individual districts move now close to the limit value. As a result of the return traffic from vacationers, there is now a greater dispersion. On August 6, the number of new infections in Germany exceeded the 1,000 mark again. A corona test has been mandatory for travelers from risk areas since August.

In addition to the return traffic, the opening of schools is the second major challenge for the federal states. Regular operation should be the rule while observing the distance rules and the hygiene concept. Arrangements are being made for schools to close.

Influence on the German economy

The impact of the global pandemic, the collapse of global supply chains and the significant international decline in economic output are weakening the German economy. It is obvious that the export-driven economy is particularly vulnerable here. The recovery is not only dependent on how successful the domestic economy is starting up and, if necessary, holding its own against further waves of contagion, but also how well other countries get the pandemic under control and stabilize their respective economies.

Gross Domestic Product (GDP) The gross domestic product (GDP) published by the Federal Statistical Office provides an initial indication for further economic development. In the first quarter, the decrease compared to the previous quarter was already -1.8%. Germany slipped into recession in the second quarter of 2020: -11.7% means a historic slump in economic output.

Gross Domestic Product (GDP, price-adjusted in %)

Source: Statistisches Bundesamt (Destatis)

Labour Market The German labor market reacted very quickly to the COVID-19 pandemic and the "lockdown". According to preliminary extrapolated data from the Federal Employment Agency, cyclical short-time working benefits were paid for 6.7 million employees in May; in April it was 6.1. The jump to March is clear with 2.46 million. The current figures on short-time work are many times higher than at the time of the financial crisis in 2008/2009.

The number of unemployed rose noticeably from March to April by 308,000 to 2.644 million and caused the unemployment rate to rise by 0.7 percentage points to 5.8%. The increase continued in the further course, but at a slower rate. The number of unemployed at the end of July was 2.91 million and the unemployment rate was 6.3%. At the same time, the companies' demand for new employees continued to decline. The turning point appears to have been reached in July, with 3,000 more jobs registered than in the previous month.

Economoc Indicators Shortly after the outbreak of the pandemic, the most important early indicators made it clear that the impact of COVID-19 on the German economy will be profound. After extensive slumps in the indices in April, the May and June values are now pointing to an improvement in sentiment across the board. Many respondents rated the coming months better than in previous months. Expectations are brightening.

Ifo Business Climate Index The mood of German entrepreneurs was disastrous in March and April. The Ifo business climate index has seen a rapid downturn in these two months, reaching a historic low of 74.2 points in April. The index rose again for the first time in May. The current situation was rated worse, but expectations for the coming months rose significantly. This trend has continued in June when the ifo business climate index rose noticeably from 79.7 points in May to 86.2 points. It was the strongest increase ever measured. In July there was another significant jump, this time by 4.2 points to 90.5. It is above all the increased expectations that have pushed the index higher. According to the Ifo Institute, the economy is gradually recovering.

Ifo Business Climate Index

Source: Ifo-Institut, 2015=100

GfK consumer climate index German consumers are regaining confidence. After the historic fall in the GfK consumer climate index during the "lockdown" to -23.1 points, an increase is now reported for August for the third month in a row. The consumer climate index is currently trading at -0.3 points.

According to GfK, consumers draw among other things hope from the extensive economic stimulus programs that the German state has launched and from the temporary reduction in VAT that will come into came into force on July 1 as well as the one-time child bonus of € 300. They expect the German economy to recover faster than initially expected. At the same time, there is uncertainty among consumers in view of the very high number of short-time workers and rising unemployment. The fear of losing a job as well as a drop in income further dampens the propensity to consume.

GfK Consumer Climate

Source: GfK SE

ZEW Economic Sentiment Germany's financial market experts were the first to look more confidently into the future. After the ZEW economic expectations were descending in March and only a value of -49.5 points was reported, the mood brightened in April. Against the background of far-reaching economic and financial policy measures on the part of the federal government, the states and the EU, the financial market players were already optimistic about further economic development in the spring. Nothing changed in this basic attitude in spring 2020. ZEW economic expectations rose for three months in a row, listed at 63.4 points in June, but then fell slightly to 59.3 points in July. The earnings expectations diverge greatly depending on the industry. They are still negative in the automotive and mechanical engineering sectors as well as in the financial sector, while the outlook is comparatively positive in the chemicals / pharmaceuticals, IT and consumer-related services segments. With slight uncertainty, a positive development in GDP is expected in the further course of 2020.

ZEW Economic Sentiment

Source: ZEW

Estimated economic development in Germany

While forecasts for economic development in Germany were still very uncertain in March 2020, economic data is available in June 2020 that allows a better assessment of the economic situation. Against this background, the German Council of Economic Experts (GCEE) published its economic forecast for 2020 and 2021 at the end of June following the submission of its special report on the “General economic situation in view of the corona pandemic” in March. For the current year 2020, the GCEE forecasts real GDP to decline by 6.5% (calendar-adjusted 6.9%). Noticeable catch-up effects are not expected before the second half of the year. In the following year 2021, positive growth of 4.9% (calendar-adjusted also 4.9%) is expected. Accordingly, German GDP is only likely to return to the level before the COVID-19 pandemic in 2022.

GDP Growth – Economic Outlook for 2020 and 2021

1 – Chained volumes (Reference year 2015), seasonally and calendar-adjusted. 2 – Forecast by the GCEE. Source: Federal Statistical Office, GCEE |20-155-1

Key Economic Indicators Germany

Sources: Federal Employment Agency, Federal Statistical Office, GCEE| 20-251

In March, the Council of Experts presented three scenarios for the further development of GDP. While the baseline scenario (see below) was still the most likely in March, Germany's economic development in recent months has been very similar to the “pronounced V” risk scenario (see below).

Base scenario: In the baseline scenario, the experts assumed that the lockdown would take five weeks and the gradual easing would take another three weeks. In this case, the economic situation in Germany would have normalized in summer 2020. After a noticeable slump in the second quarter, the economy could have quickly kicked in again. A GDP of -2.8% was forecast for the year as a whole. In the baseline scenario, the GCEE had forecast pronounced catch-up effects and positive growth of 3.7% for 2021.

Risk scenario - pronounced V: In late summer 2020, we know that the lockdown and subsequent easing took longer than expected in March and in the baseline scenario. The pronounced V risk scenario is now the likely scenario for the German economy. In this scenario, as is indeed the case, large-scale production shutdowns take place and the restrictive measures are maintained for longer than planned. In the second quarter, GDP could be 10% below the current level. Risk scenario - long U: Basic assumption is that if measures to contain the virus persist beyond summer 2020 and the measures taken by politicians will not be sufficient to prevent the economy from being fundamentally affected by bankruptcies and layoffs, financing conditions would worsen and uncertainties among entrepreneurs and consumers would increase. Negative feedback with the financial markets have to be feared. For this scenario, the experts forecasted a GDP of -4.5% in 2020 and only a very slow economic recovery in 2021 with +1.0%.

Comparison with GDP-Scenarios from the GCEE Special Report

1 – Chained volumes (Reference year 2015), seasonally and calendar-adjusted.  2 – Forecast by the GCEE. 3 – Scenarios from the Special Report March 2020. Source: Federal Statistical Office, GCEE |20-155-2