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Pandemic shutdowns will affect German economy

October 30, 2020

The new partial shutdown will initially not hit Germany's economy as hard as the pandemic measures in spring. Nonetheless it will slow down the current upturn considerably, DW's Henrik Böhme writes.

Chairs are stacked at a restaurant in Bamberg
Image: K. Schmidt/Fotostand/picture alliance

Restaurant proprietors across Germany are at a complete loss. Many of them have adhered to strict hygiene rules, spent money on patio heaters and ventilating systems, and set up tents to prepare the autumn and winter months, and now they will have to lock up for four weeks. No guests, no revenue, and what will follow is uncertain. It is easy to understand proprietors' resentment, although their argument — that no one gets infected by visiting restaurants — feels a bit disingenuous. This argument is echoed by cinema and theater proprietors, and by railway and airline companies: Everywhere is apparently safe. But the coronavirus is spreading rapidly in Germany, and the current second wave of infections has made it virtually impossible for health authorities to determine who contracted the virus where and when.

Coronavirus Crisis

Germany is one of the world's biggest economies, but also a country where regional health authorities frequently use fax machines to send their data to the Robert Koch Institute (RKI), Germany's federal agency for disease control and prevention. (A note for young readers: Fax machines, invented in 1843, are used for sending documents through the analog telephone network.) In addition, contact tracing would certainly be much easier if the coronavirus tracking app could collect more data. In a country that puts private data protection above public health, however, this is not possible. Welcome to the digital age!

Read more: In May, World Medical Association warned that Germany had 'underestimated risk to public health'

But let's go back to Germany's economy. The government has also opened state coffers and pledged quick aid without red tape: Many small businesses affected by the new restrictions will receive up to 75% of their November 2019 revenue. This could even be a relatively profitable outcome for many businesses in the hospitality sector as it is reasonable to assume that — in the face of dramatically increasing infection rates — German restaurants would have had fewer customers even without a shutdown.

Böhme, Henrik
DW business editor Henrik Böhme

The German Hotel and Restaurant Association has published figures suggesting that one-third of businesses in Germany will face bankruptcy as a result of the new measures, but those should be taken with a pinch of salt. The Crif Bürgel credit bureau, which has investigated data related to more than 57,000 restaurant businesses, estimates that 14% of them are currently at risk of insolvency. This means that there are still thousands of jobs in the balance — for that reason, government aid is essential for saving as many positions as possible in the industry. The same goes for the culture sector and the event sector as a whole.

Read more: WHO says health workers account for 10% of global coronavirus infections

This persistent pandemic

Even the closest observers are only offering careful assessments of what the partial shutdown might mean for Germany's economy. Nobody knows what will happen as a result of the virus and what measures will be required to save lives. One thing is clear though: An amazing figure such as plus 8.2% (which denotes the record growth of Germany's economy in the third quarter, compared to the second quarter) will not be achieved again in the near future.

Read more: In June, World Health Organization warned that the pandemic was 'not even close' to being over

Nobody can predict whether people will continue shopping during the partial shutdown (i.e., whether consumer confidence will remain reasonably high), whether industries can keep their production running (i.e., whether jobsites will be safe for workers), and whether German businesses will continue to be able to sell their products on export markets, with the pandemic currently a cause for tremendous concern in neighboring countries. At any rate, experts currently see the danger that, during the fourth quarter, economic growth will come to a standstill again. This means that during the full year 2020 the country's economy will probably shrink by 5% or a little more. Sobering, but not exactly catastrophic.

COVID-19 global new case numbers trend

The pandemic continues to be a gigantic learning process for scientists and doctors, for politicians, for businesses, which must adapt, and for people, who must survive the pandemic. One thing, however, is abundantly clear: If we don't succeed in keeping the pandemic under control, there can be no economic recovery.

Boehme Henrik Kommentarbild App
Henrik Böhme Business editor focusing on international trade, cars, and finance@Henrik58