MERKEL UNDONE? German Economy Set to Shrink Almost 10% Due to Lockdown

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BERLIN – European Union’s biggest economy, Germany, is set to decline by at least 9.3 percent in 2020, according to the most likely scenario outlined by one of the country’s largest economic think tanks, the Ifo Institute. The Munich-based institute presented three possible scenarios in its latest economic forecast update on Thursday. Such a report is likely to have a negative consequence on Merkel and her party, which has already been losing popularity over a number of previously unrelated matters. 

Based on a survey conducted among companies in May, it could take them nine months on average to get back to normal after the severe second-quarter lockdowns. In this case, the economy could shrink by 6.6 percent this year and then recover from this level by 10.2 percent next year, RT reported. However, this is the best-case scenario that doesn’t take into account any possible problems that may occur by year’s end.

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However, the worst-case recovery would take significantly longer, up to 16 months, with economic output shrinking by at least 9.3 percent this year. According to this scenario, next year’s growth will just slightly compensate for the losses, and the recovery would then be drawn out well into 2022.

The quickest possible return to normal would be after five months on average, resulting in a 3.9 percent decline in economic output, which is considered highly unlikely. Even the Ifo Institute’s average forecast shows that the coronavirus crisis could plunge Germany into the deepest recession since the end of WW2.

The think tank’s projections are not much gloomier than the German Economy Ministry’s outlook, which predicts that the German economy will most likely plunge into a recession. The recession is predicted to be 6.3 percent in 2020. The COVID-19 lockdown has already halted the country’s decade-long economic growth.

In the first three months of this year, the country’s economy has shrunk by some 2.2 percent compared to the last quarter of 2019. This was the second quarterly contraction, meaning that the German economy has technically already fallen into recession. The worst-case scenario doesn’t take into account a possible second wave of COVID-19 lockdown which some claim could happen during autumn of this year.

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