Germany’s so-called economic “Wise Men” have stopped beating about the bush and have come out with a clear statement that Germany’s economy is heading for serious shrinkage this year as a result of the coronavirus pandemic. They expect a fall in Gross Domestic Product in 2020 of between 2.8% and 5.4%. They highlight the construction industry as one lever the politicians can use to give some support to the collapsing economy.
The “Wise Men” currently consist of economists Lars Feld from the University of Freiburg, Achim Truger of the University of Duisburg-Essen, and Volker Wieland of the Goethe University in Frankfurt. Professor Feld, in particular, as chairman of the group, appears frequently on German TV and in the media as an economic spokesman.
The official document of Expert Advice presented to the government on April 3rd for 2020 and 2021 paints three different possible scenarios - in all of which a recession in the first half of this year is unavoidable. The difference in the scenarios is the length of the health crisis and the breadth of measures required to the get the economy back on an even keel.
The most probable scenario, say the economists, is where average growth this year falls by 2.8%, to recover next year with a plus of 3.7%. This assumes a return to normal economic levels over the summer period. They depict two further scenarios, the first of which is the “V-shaped” pattern where the economy crashes by 5.4%, followed by a huge recovery effect of 4.9% in 2021.
The second is less extreme, with the experts penning in further political restriction long past the summer. This would see a fall in GDP of 4.5%, followed by a much slower recovery of just 1% through 2021. This would assume that any government initiatives would be insufficient to prop up the economy and prevent significant damage to production and the delivery of services. This also assumes serious deterioration in the provision of financing and the ‘solidification’ of real uncertainty among investors, along with a serious reluctance to spend on the part of consumers.
The experts support the government’s package of proposals to support the economy, saying it “comes at the right time” to stabilise household income levels, including providing direct grants for particularly hard-hit families and the self-employed. These need to be implemented in full while the health protection measures are in full force, to help boost the economy for long-term recovery.
Building and construction projects should be given absolute priority while their usage is still being underutilised and the building industry less hampered by constraints, urge the economists. In particular, schools, local infrastructure, road-building and other public projects need to be started, while planning on further public projects needs to be intensified during this critical time.