Ifo business climate index falls to record low

Berlin The mood in Germany’s economy is catastrophic. The most important leading indicator, the Ifo business climate index, fell from 85.9 to 74.3 points in April. This is the lowest value ever measured. There has never been a stronger decline. “This is mainly due to the massive deterioration of the current situation,” said Ifo President Clemens Fuest on Friday.

In addition, companies have never been so pessimistic about the coming months. “The corona crisis hits the German economy with full force,” said Fuest. The crisis is now affecting all industries. Even the main construction industry is now worried about the future. So far, together with consumption, it has been the pillar of the economy.

The fact that the effects of the corona-related standstill would hit companies hard in April had become clearer every day since Easter. On Thursday, the Ifo reported that the crisis had hit the labor market: in industry and service providers, one in five companies surveyed by the Ifo want to lay off employees or not to extend temporary jobs.

It is 15 percent in retail, and two percent on construction that has so far been little affected by downtime. In almost all industries, more than 40 percent of companies want to postpone investments – even 31 percent of them are in construction.

How deep the recession will become in 2020 is currently difficult to estimate. “We do not know how much we can start the economy up again without increasing the risk of infection,” Monika Schnitzer told the Handelsblatt. The situation is not comparable to any post-war recession. However, she is confident that Germany will get there in the next few weeks if protective measures are increased and tracing apps are increased.

The purchasing manager index of the IHS Markit institute also fell to a record low on Thursday. In this manager survey, 75 percent of service providers and almost as many industrial managers said that their sales had shrunk significantly. Service providers’ sales fell more than ever in the 20-year history of this survey.


“Both domestic and export demand has collapsed,” writes IHS Markit economist Phil Smith. In the service sector, more jobs were cut than at the height of the financial crisis recession in April 2009, and in industry, too, the reduction in personnel accelerated – despite short-time work.

In any case, leading economists are starting to further lower their forecasts for 2020. The head of economic operations, Lars Feld, now expects that gross domestic product (GDP) will shrink by at least five and a half percentage points in 2020. It could shrink more than in the 2009 financial crisis recession.

Three and a half weeks ago, when the Economic Advisory Council for Economic Affairs Peter Altmaier (CDU) presented a special report on the corona pandemic, a minus of five and a half percent was still the worst-case scenario. However, the IMF expects German GDP to collapse by seven percent in 2020.

Even in the large economic research institutes, which predicted a minus of 4.2 percent for 2020 in their joint diagnosis two weeks ago, many expect that a five will be before the decimal point. The markets are therefore eagerly awaiting which recession forecast the Federal Government will commit to in the coming week.

However, Stefan Kooths, economic expert at the Kiel IfW, also warned that he would now outdo himself in horror scenarios: that April would be the low point of the year and that GDP would decline by ten percent in the second quarter, he said in early March already expected. The question now is how quickly a recovery can begin.

France: lowest since 1980

However, this also depends on how quickly the economy in the EU countries most affected by the pandemic can get going again, Italy, Spain and France. “As intertwined as our economy, for example, with that in Italy, we have to be very interested in the EU not breaking apart,” said Schnitzer. “It is not just about solidarity, it is in our interest if we help other EU countries,” she emphasized.

However, the prospects for the economy are currently catastrophic in all large EU countries. For example, the IHS Markit Purchasing Managers’ Index fell to a record low for the euro zone on Thursday. In Italy, the IMF expects GDP to decline 9.1 percent this year.

The mood in France’s economy also deteriorated massively in April due to the corona crisis. The business climate has dropped to the lowest level since the start of the surveys in 1980, according to data from the national statistical office Insee on Thursday. The index fell by 32 points to 62 points. There has never been such a sharp drop.

Economic activity in France was 35 percent lower in April than it was before the economy shutdown in March. Insee also does not expect the business climate to recover anytime soon. In this unprecedented environment, the behavior of companies and consumers can hardly be predicted. The French government expects gross domestic product to decline by eight percent this year.

More: According to the Ifo Institute, a fifth of German companies are planning to cut jobs due to the corona crisis.


Despite huge aid, economists do not anticipate inflation for the time being


Economists do not expect prices to rise in a timely manner.

(Photo: dpa)

Munich Regardless of gigantic government spending, economists do not anticipate a surge in inflation in the Corona crisis for the time being – on the contrary, falling prices. A key factor in this is the drop in oil prices, according to several economists.

“In view of the severity of the current recession and against the background of the extremely sharp drop in oil prices, consumer price inflation should be significantly lower on average in 2020 than in the previous year,” says Michael Menhart, chief economist at the world’s largest reinsurer Munich Re. “I suspect that the corona crisis will lead to deflation,” says Markus Demary, Senior Economist for Monetary Policy and Financial Markets at the Cologne Institute for Economic Research.

“In the short term, the Covid 19 crisis is likely to have a deflationary effect,” says Katharina Utermöhl, Senior Economist responsible for Europe alliance. Europe’s leading insurer expects an extremely low price increase of 0.2 percent for 2020 in the euro area, and an inflation rate of 1.6 percent for 2021. BayernLB chief economist Jürgen Michels shares his colleagues’ assessments: “In the short term, I can clearly see that the pressure on prices is going down – also because of the oil price trend.”

Not only the governments, but also the companies will be sitting on mountains of debt after the crisis. “This debt has to be reduced and the debt reduction has priority over new investments for a certain time,” says IW money market specialist Demary. “Due to the reluctance to invest, demand is lacking, causing price growth to stagnate.”

Two of several other factors that Demary names: risk aversion and presumably subdued demand for the end of the pandemic. “Companies and households are more likely not to invest, but to wait and see that the uncertainty falls.”

Mountains of debt become the sticking point

And what about the end of the crisis? That depends on the extent and pace of the subsequent recovery, as Munich Re chief economist Menhart says – “although we are currently not assuming a fundamental change in the inflation outlook and therefore expect inflation rates to be roughly pre-crisis levels.”

However, like lawyers, economists analyze a variety of factors in their assessments. Some of these factors could well lead to a return in inflation. “But as soon as the crisis is over, dealing with the accumulated mountains of debt could turn out to be a sticking point,” says Allianz economist Utermöhl.

Experience from the financial crisis had shown that the resulting debt has not been reduced in many countries. “On the contrary: global debt has reached a new record high in 2019,” says the economist. “Since there will hardly be any productivity boost in the near future, I assume that the second path will ultimately be taken” – ie inflation.

Munich Re chief economist Menhart points to another point: “However, there are risks of higher inflation especially if, with normalizing economic demand, companies are unable to restart production sufficiently quickly.”

BayernLB chief economist Michels also believes that inflation can return. “In the medium term, I see a certain risk that inflation could go up, but only when we are economically back to the level we had before the crisis.” According to Michel’s assessment, this could only be the case in 2022/23.

“We noticed in the Corona crisis that we had too few reserves for many things,” says the Munich economist. “If we have a higher level of storage again, it costs money. And if you can no longer rely on international supply chains, production may be more local, but more expensive. These two factors could drive prices up. ”

More: Fluctuations on the stock exchanges are extreme due to the Covid 19 pandemic. But there is a way out: alternative investments. The Handelsblatt presents them.


US heading for $ 3.7 trillion budget deficit

View of the U.S. Congress

According to the Budget Office of the Congress (CBO), the US deficit will increase to $ 3.7 trillion.

(Photo: AP)

Washington The US budget deficit will rise to a record $ 3.7 trillion this year, nearly quadrupling, according to independent Congress experts. The reason is the consequences of the coronavirus pandemic on the economy and the massive aid programs of the government, as announced by the Budget Office of the Congress (CBO) on Friday.

The US economic output (GDP) is expected to shrink by about twelve percent in the second quarter, which corresponds to a decrease of 40 percent over the year.


Asian investors have doubts about the rapid end of the corona crisis


A passer-by in front of a display board of the Tokyo Stock Exchange.

(Photo: AP)

Tokyo Doubts about the rapid development of a corona drug and sobering economic data from the United States put the mood of Asian investors at the end of the week.

In Tokyo, the 225-strong Nikkei index was 0.9 percent lower at 19,262 points in the trade. On a weekly basis, it is 3.2 percent in the red.

Meanwhile, Japanese Minister of Economy Yasutoshi Nishimura is nevertheless optimistic about the government’s new stimulus package. The package in the fight against the consequences of the corona crisis should push the economy strongly. It will increase gross domestic product by about 4.4 percent, said Nishimura on Friday.

The government had raised the stimulus package to a record $ 1.1 trillion. This is intended to expand cash payments to citizens, for example. The coronavirus pandemic threatens to plunge the world’s third largest economy after the United States and China into recession.

Disappointing test results weigh on markets

The courses also fell in China. A report on disappointing test results for the US company’s Remdesivir drug depressed sentiment Gilead in a study in China to treat Covid-19. Gilead said that the study was terminated prematurely due to a lack of participants and was therefore not statistically meaningful.

The fact that reports of corona drugs triggered such strong market movements is an indication of how much investors are looking for signs when the crisis is over, said Tim Ghriskey, chief strategist at Inverness Counsel. “Any bad news should shake the market.”

The country’s Chinese central bank has meanwhile cut another of its key interest rates. The interest rate for medium-term loans will be reduced to 2.95 from 3.15 percent, she said in Beijing on Friday.

Commercial bank loans mature after one year, but can be extended to another two years. The central bank had recently turned the interest rate screw several times to boost the Chinese economy with cheaper money. This contracted by 6.8 percent in the first quarter due to the Corona crisis. This was the first minus since the beginning of the quarterly statistics in 1992.

The pandemic is causing the global economy to collapse. Business activity in the USA fell to a record low in April, and things look bleak in Asia and Europe as well.

In Germany, the Ifo index will be presented in the morning, experts are also expecting a slump here. To keep the US economy alive, the US House of Representatives gave the go-ahead on Thursday for another $ 484 billion aid program. US President Donald Trump said it was possible that the distance rules would have to be extended until the summer.

More: Read all current developments regarding the corona pandemic here.


Unemployment in Italy and the USA increases dramatically

Closed business in the United States

Since the start of the corona crisis, over 26 million US workers have registered as unemployed.

(Photo: AP)

Rome, Washington Not only in Germany, but also in the United States and Italy, the dramatic consequences of corona-related restrictions on the labor market are becoming increasingly important. The United States saw another surge in unemployment claims last week.

According to figures released by the U.S. Department of Labor on Thursday, between April 11 and April 18, 4.4 million citizens applied for unemployment benefits. That is slightly less than the previous week, when 5.2 million applications were received. Overall, however, the historic downturn in the US labor market continues.

Until the start of the corona lockdown in mid-March, the US was practically fully employed. Since then, 26.5 million US workers have registered as unemployed. That corresponds to about ten percent of all workers there.

The unemployment rate for April, which will only be released in the United States on May 8, is estimated by experts to be around 15 percent. The Oxford Economics research institute calculates that the corona pandemic in the United States will lose a total of just under 28 million jobs. For comparison: The recession after the financial crisis in 2008 only destroyed about nine million jobs in the United States.

Registration for unemployment benefits in the United States is also likely to be particularly high because the US government has expanded claims to support in response to the corona shock.

American unemployed people now receive a fixed flat-rate payment of $ 600 a week from the federal budget, in addition to the unemployment benefit of a few hundred dollars a month, which varies from state to state.

For some low-skilled workers, government support is higher than their previous salary. For the first time, solo self-employed persons from the so-called gig economy are entitled to unemployment benefits.

This means that more redundant workers than before have an incentive to actually register as unemployed. However, those who quit on their own initiative or fly out due to their behavior generally have no claim to unemployment benefits in the United States.

Situation in Italy

In Italy, fear of corona-related unemployment is now almost as great as that of the virus itself. According to a survey conducted by the Tecnè research institute on Tuesday, 54 percent of Italians are afraid of losing their jobs, including civil servants . Meanwhile, 62 percent of the population fear the corona virus.

In Italy, not only is the number of corona deaths still highest in Europe, the economic consequences of the crisis are also the most dramatic. With only a few exceptions, production in the country already stops in the fifth week. There will only be easing from May 4. The International Monetary Fund therefore expects Italian economic output to decline by 9.1 percent in 2020.

In its “Global Outlook” for Italy, the rating agency Fitch estimates that the unemployment rate, which was ten percent in 2019, will rise to 12.1 percent this year and will only decrease slightly to 11.8 percent by the end of 2021.

The Italian statistics office Istat only published the unemployment rate for February at the beginning of April, a decrease to 9.7 percent was reported. But that was before the escalation of the Corona pandemic in Italy. It is only at the beginning of May that the March figures will show the true extent of the corona crisis on the labor market.

More: How are different countries and systems doing in the corona crisis? While European countries are at the top, China and the USA are lagging behind.


Almost a fifth of the companies want to cut jobs

Berlin Daimler– HR Director Wilfried Porth didn’t gloss over anything: “Obviously something is breaking away at the moment that no one knows if it can be caught up,” the manager said last week. The carmaker had to accept a drop in profits of almost 80 percent in the first quarter, sales of the core brand Mercedes decreased by 15 percent. “The fact that we will need to adjust is obvious,” said Porth. He didn’t say the word job cuts. But even before Corona, Daimler had decided to cut up to 15,000 jobs.

The fear of jobs is back in Germany and the virus pandemic will leave deep marks on the job market. Every second company is already doing short-time work. According to a survey by the Ifo Institute, almost a fifth of the companies want to lay off employees or not to extend temporary jobs.

“The fear of jobs seeps in,” says Ifo economist Klaus Wohlrabe. The job cuts plans are apparently based on the concern of many companies that the restrictions on public life in the corona crisis will not end in May.

On average, the companies surveyed expected four months of partial standstill. 84 percent feel a drop in sales due to the corona crisis, only four percent register a growing business. According to the Federal Employment Agency (BA), almost every third of the 2.2 million companies with at least one employee who is subject to social security contributions have registered short-time work.

Previous employment forecasts are becoming more and more waste every day that the corona crisis continues. “For the labor market, we expect unemployment to rise sharply over the next few months. But many companies keep their people, you can see that from short-time work, ”says Enzo Weber from the Institute for Labor Market and Vocational Research (IAB).

BA boss Detlef Scheele expected a rise in unemployment by 150,000 to 200,000 people in April a month ago. The Nuremberg authorities will present the current data next Thursday.

Domestic demand collapses

There is hardly any improvement in sight if you look at the economic development: the purchasing manager index of IHS Markit has plummeted. In the survey, 75 percent of service providers and almost as many industrial managers said that their sales had shrunk significantly. Service providers’ sales fell more than ever in the 20-year history of this survey. “Both domestic and export demand has collapsed,” writes IHS Markit economist Phil Smith.

“Demand levels will not return to pre-crisis levels anytime soon,” says Sascha Haghani, head of the global restructuring practice at management consultancy Roland Berger. That’s about it GfKConsumer barometer, which measures consumer mood, plummeted to a record low.

“Sooner or later the companies will have to adjust their costs accordingly,” Haghani expects. Probably also through job cuts: According to the IHS, more jobs were cut in the service sector than at the height of the financial crisis recession in April 2009, and the reduction in personnel is also accelerating in industry.


The Ifo survey also shows how wide the shock waves are spreading in the economy: in industry and service providers, almost every fifth company wants to lay off employees or not to extend temporary jobs. It is 15 percent in retail, and two percent on construction that has so far been little affected by downtime. Leading economists such as the head of business practices, Lars Feld, are starting to adjust their forecasts for 2020 downwards.

After Chancellor Angela Merkel and the Prime Ministers decided a slow restart of the economy last week, he expects gross domestic product (GDP) to shrink by at least 5.5 percentage points in 2020. Even in the economic institutes, which predicted a minus of 4.2 percent for 2020 in their joint forecast two weeks ago, it is now expected that a five will be before the decimal point.

The IAB had anticipated a 4.7 percent decline in GDP in March, when the economy largely stands still for two and a half months and only normalizes by the end of the year. In this case, the number of unemployed could temporarily rise from the current 2.3 million to more than three million, the Nuremberg researchers predicted at the time.

A well-known restructuring expert expects Corona to increase unemployment to as many as four million people. Especially badly hit sectors such as tourism and gastronomy are affected, but also important branches of industry such as the automotive suppliers.

The government is obviously also assuming a long period of weakness on the labor market. For example, for all unemployed people who would slide into Hartz IV between May and December, the duration of the unemployment benefit will be extended by three months. “Those who are just becoming unemployed or who have recently become unemployed currently have little chance of finding a job again,” said Labor Minister Hubertus Heil (SPD).

In order to counter the allegations made by the unions, in particular, that politicians are more concerned with companies than with employees, the coalition committee also decided on Thursday night to increase the short-time work allowance – staggered according to the duration of benefits.

It is currently 60 percent of net income and 67 percent for employees with children. From the fourth month in Corona short-time work, employees whose working hours are reduced by at least half are now to receive 70 or 77 percent. From the seventh month, the rates increase to 80 to 87 percent.

In addition, short-time workers who take up another job can earn up to the amount of their previous monthly income. So far, this was only true for “systemically relevant” activities such as care or agriculture.


The gradual increase in short-time work benefits has met with criticism: “I would have preferred a faster increase, especially for low-wage earners,” said Sebastian Dullien, head of the Institute for Macroeconomics and Business Cycle Research (IMK). In a survey, 40 percent of employees who were on short-time work said that they would get by with the money for a maximum of three months.

Employers see “contribution club”

The decision met with a mixed response among the unions, which had hoped for a general increase to 80 or 87 percent from the start. “This protects many employees from existential hardships,” praised IG Metall boss Jörg Hofmann. On the other hand, the chairman of the Food, Beverage and Catering trade union (NGG), Guido Zeitler, declared that the increase was correct, but was too small and too late.

In the hospitality industry, employees could probably only expect 80 percent of normal net wages in October 2020. According to the NGG calculations, according to the new plans, a cook in Berlin will have around 1,070 euros instead of around 920 euros and short-time work from around 1,220 euros from the seventh month. “For hundreds of thousands of people with low incomes, the only thing left to do is to apply for Hartz IV,” said Zeitler.

IAB labor market expert Weber also criticizes the fact that the planned changes will not benefit employees in the low-wage industries in a very targeted manner. “In the end, industrial sectors that have long been in recession could benefit in particular.”

For Holger Schäfer from the employers’ institute of the German economy (IW), it is not at all clear which problem the government wants to solve with the compromise: “In the end, a lot of money is spent on a purpose that is not clearly defined.” According to Schäfer’s calculations, the BA would need 24 billion euros to send 4.5 million full-time average earners without children on short-time work for three months. The employment agency’s reserve is just under 26 billion euros.

The criticism from business was correspondingly harsh. Employer President Ingo Kramer praised coalition decisions such as help for restaurants and the easier return of losses for companies. But they would be overlaid by “spending money with a watering can”.

The employers’ association Gesamtmetall criticized that the decisions on short-time work were expensive and caused an enormous additional administrative effort at the BA: “There is great concern that when the economy restarts, the tax and contribution club will fall on the employees and companies,” said CEO Oliver Zander the Handelsblatt. BA boss Scheele said that he would have liked a “simpler regulation”.

Monika Schnitzer, a new member of the Council of Experts, told Handelsblatt that she could understand that the government wanted to expand short-time work benefits. “But I think the chosen way of increasing is problematic.” After all, many employers voluntarily increased to keep their employees. I am afraid that it will have a high share of deadweight effects. ”

Ifo President Clemens Fuest believes the decisions will stabilize consumer demand. They are therefore also “a suitable economic policy measure”. The same applies to the extension of the period of unemployment benefit

More: Tax cuts, premiums, aid: Germany’s economists argue about state aid


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Turkish central bank cuts interest rates again

Istanbul The Turkish central bank cut its key interest rate for the eighth time in a row. On Wednesday, central bank boss Murat Uysal set the one-week repo rate at 8.75 percent – one percentage point or 100 basis points lower than before.

The central bank classifies the risks for the inflation forecast as declining at the end of the year. “In this context, the Board of Directors has decided to cut the base rate by 100 basis points,” said a statement by the monetary policy council of the Turkish Central Bank (TCMB).

In the course of a possibly several-month standstill of the global economy due to the spread of the new corona virus, the government in Ankara is using cheap money to keep the domestic economy alive.

Since July 2019, the central bank has cut key interest rates eight times: from 24 percent to 8.75 percent. This repo interest rate describes the conditions at which commercial banks can borrow money from the central bank within a week. As a rule, such transactions take place to lend fresh money in the form of loans to consumers or companies.

The rule is: the lower the key interest rate, the more frequently new loans are requested. This will boost the economy and create jobs. At the same time, the newly spent money dilutes the value of the domestic currency. The exchange rate then usually falls and inflation rises.

Piotr Matys, strategist at Rabobank in London, says: “Another significant rate cut is a clear indication that supporting the economy is a priority despite the risk of recession.” But it also means “that the lira will be even less attractive, and that the central bank may have to spend even more on currency interventions ”.

Not a priority for exchange rate and price stability

The analysts of the Turkish investment company Oyak had expected an interest rate cut of exactly this amount. In a phase such as during the corona crisis, the economy is threatened by the “significant risk” of a recession, the Oyak experts write. “We therefore expect that the central bank will not give priority to exchange rate and price stability.”

The Turkish lira initially remained stable after the interest rate decision and was down 0.2 percent in the afternoon (local time) at 6.9966 lira per dollar. A euro therefore cost 7.6086 lira or minus 0.39 percent. Within a quarter, the Turkish currency lost around eleven percent against the dollar and eight percent against the euro. According to the Bloomberg agency, Turkish state banks have intervened in the markets with up to $ 300 million to support the lira.

Subtracting inflation from the last 11.9 percent, Turkey currently has one of the lowest real interest rates in the world. Central bank president Murat Uysal said that the central bank believes that inflation will hardly increase in the wake of the corona crisis, since the oil price has dropped so sharply.

The central bank is currently anticipating inflation of 8.2 percent for the year as a whole. “Although the unit cost increases associated with the decline in production and sales are being tracked, the inflation-limiting effect of overall demand conditions is expected to increase,” said the TCMB monetary policy council.

Pressure is growing on indebted companies

The Turkish economy, like many countries, is severely affected by measures to curb the novel virus. The lines at the automotive suppliers have been idle for weeks since March because the major car manufacturers could not use any intermediate products at the moment. The situation is similar in tourism, one of the most important sources of foreign currency in the country. Food producers, on the other hand, can look forward to. “The demand from Europe for Turkish fruits and vegetables is great,” explains Yüksel Tavsan, President of the Association of Turkish Wholesalers.

The renewed rate cut is likely to continue to weigh on the value of the lira in the coming months, especially as the central bank cannot forever intervene against the currency downturn. Companies that are heavily exported should benefit from this: their products become cheaper abroad.

For companies with high dollar debt, the pressure on the balance sheet will increase. The lower the lira is, the more expensive your foreign debt will be. These include analysts from Oyak companies such as Anadolu Efes, Odas, Migros and Zorlu Energy.

More: Brazil, South Africa and Turkey: three emerging markets in the debt trap.


Economists argue about stimulus programs

Berlin Scrappage bonus? VAT cut? Negative tax for companies? When the coalition committee draws up an interim assessment of the consequences of the economic standstill on Wednesday evening and provides advice on possible new aid for small and medium-sized businesses, the leaders of the Union and the SPD also want to include advice from economists. However, almost all of the proposals for an economic stimulus package to boost consumption are controversial among economists.

It starts with the question whether, in addition to the rescue aid that has already come into force, the economy needs a medium-term economic stimulus program to get it back on its feet. Yes, say Clemens Fuest, President of the Ifo Institute, and Marcel Fratzscher, President of the German Institute for Economic Research (DIW). “It is not enough just to avoid bankruptcies and unemployment,” said Fratzscher.

No, says Gabriel Felbermayr, President of the Kiel Institute for Economic Research (IfW). “Economic stimulus programs are pointless as long as economic activity is paralyzed by preventing social contacts,” he says. The government must now provide a credible, resilient plan to exit the lockdown. Veronika Grimm is more cautious about saying no to promoting consumption. It requires targeted modernization investments in digitization and climate protection.

Employees of Fratzschers DIW and Felbermayrs IfW even had a day-long Twitter exchange of blows about the need for economic support. After the leading economic research institutes, which included the DIW, the IfW and the Ifo, delivered their joint forecast to Economics Minister Peter Altmaier (CDU) last week, the DIW complained that his recommendations for an economic stimulus program had been kept outside by the other institutes .

More short-time work allowance? Broad tax cuts? “We don’t need all of that,” says Felbermayr. He is convinced: “If the companies’ equity base remains successful, then after the crisis they can continue where they had to stop because of the crisis.”


Marcel Fratzscher is President of the German Institute for Economic Research.

(Photo: imago / IPON)

He does not consider it necessary to strengthen purchasing power. “We save more than usual because we can consume less. The money is available for consumption as soon as the lockdown ends, ”he says.

In contrast, Fratzscher and Fuest are convinced that the crisis is so deep that the state must support the economy. Short-time work, for example, is associated with a loss of income. However, Fuest warns: “The state should use the money very specifically for additional measures”, after all, the national debt is already increasing rapidly.

With the short-time work allowance, for example, which Federal Labor Minister Hubertus Heil (SPD) wants to increase for everyone, Fuest suggests increasing it only for those who would otherwise fall under the social assistance limit. As with the solo self-employed, this could be done without a wealth check, says Fuest.

In the Union too, it was said, an increase can only be imagined for lower income groups. There are also voices from the CDU and CSU that have not yet decided on new aid programs, but want to monitor developments for two to three weeks.


Fratzscher, in turn, wants to strengthen purchasing power through temporarily lower social contributions. That would also help employers. “Broad income tax cuts would now be of little use because they are more likely to help people with higher incomes,” said Fratzscher.

It is undisputed that the economy is suffering enormously from the contact bans imposed in mid-March. The figures that the Ministry of Economic Affairs had prepared for the coalition committee and which are available to the Handelsblatt describe a catastrophic situation.

By April 13, 725,000 companies had registered with the Federal Employment Agency for short-time work. The applications already examined concerned over one million employees. 13,000 companies have applied for liquidity aid from KfW amounting to 26 billion euros.

And 1.1 million small businesses were granted grants of nine billion euros. According to data from the HDE retail association, 70,000 hotels and restaurants are facing bankruptcy. In a lightning survey by KfW on the start-up platform, 90 percent of the self-employed indicated a drop in sales. “We are currently experiencing a massive economic downturn,” says Fuest.

Purchase premium in the criticism

The purchase premium demanded by the auto industry is particularly bad for the economists surveyed by the Handelsblatt. Fuest advises the government to consider what the 2009 scrappage bonus actually did before making a decision.

In no case does he want to see the bonus linked to the scrapping of old cars. Fratzscher thinks that a scrappage bonus could be an incentive to buy a car; but it must promote new drives. “If you can’t do this, the state should invest in charging stations instead of subsidizing the status quo,” he said.

The Veronika Grimm economy considers “a scrapping premium to be the wrong instrument”. It would “potentially bring hundreds of thousands of new petrol engines to the fleet and delay the transformation towards climate-friendly mobility,” she said.

The population is also against the premium, as a representative survey by the polling institute Civey shows, which is available to the Handelsblatt: 62 percent answer the question “Should the federal government support the purchase of new cars with a scrapping premium for old vehicles as a result of the corona pandemic?” “No, definitely not” and “rather no”.

It is better, says Grimm, that the state should invest money in the expansion of IT networks and in schools. This is all the more important since children from educationally disadvantaged classes would now suffer new disadvantages due to the school closings.


Fuest also relies on targeted investments: “IT specialists are now available, so it would be the right time to reduce the IT backlog in administration,” he said. The digital skills of workers should also be trained. There was time for this during short-time work. “We now have free construction capacities that did not exist before Corona,” said Fuest, who therefore advises that public construction investments be preferred.

Fratzscher also demands the promotion of the domestic economy. “It will not work for Germany to export itself out of the crisis,” he said. Economic growth in key customer countries, such as China and the USA, is too weak for this.

Even the proposal to lower VAT is not well received by economists. On the one hand, with loss of revenue of twelve billion euros per percentage point, this is particularly expensive for the state treasury. Fratzscher also doubts that the relief would be passed on to customers. “It would therefore be a subsidy to companies that would not increase demand,” he said.

Fuest is also skeptical about a VAT cut that several prime ministers want for restaurants. “If you choose to do it, it would only be temporary,” he said. “But then later you would have the problem of getting out of this exception,” he fears.

Compensation for lost profits?

There is, however, one way that economists would go together: relief for companies that profit taxes do not have to be paid this year, but are postponed to other years through generous tax advances and tax returns. The companies would then come out of the corona crisis with significantly less debt.


Gabriel Felbermayr has been President of the Institute for the World Economy since March 2019.

(Photo: ifw-kiel)

This was suggested by the former economist Peter Bofinger. Immediate depreciation for investments is also widely supported. Felbermayr also thinks this makes sense. He also advocates a “negative tax”, where companies would be reimbursed for profits based on profit taxes for 2019 for 2020 – repayable from 2021.

Michael Hüther, head of the employers’ institute of the German economy (IW), had also asked for a negative tax. Fuest can also envisage government grants that would have to be repaid if profits flow again.

Bofinger even thinks that the companies could demand compensation from the state for their lockdown-related loss of profits. “You shouldn’t treat them like supplicants,” he said. “Hotels, for example, cannot help that they cannot do business.” The corona crisis is completely different from the financial crisis that bank managers caused.

“If the regulatory principle applies that responsibility and liability go hand in hand, then companies should get money from the state,” he says. Like the farmers after the tsunami: “The state did not take part in the farms in return,” said Bofinger.

More: Different sectors are affected to different degrees by the corona crisis. The state should therefore rely on industry-specific solutions to boost the economy again, says Handelsblatt editor-in-chief Sven Afhüppe.


Private savings rate rises to its highest level since 1992

DZ Bank

Economists at DZ Bank expect a higher private savings rate.

(Photo: dpa)

Berlin Despite a loss of income due to the corona crisis, the Germans will put more money on the high edge of a study. The savings rate is expected to climb to 12.5 percent this year from 10.9 percent in 2019, the economists of DZ Bank calculate in their study published on Monday.

“This is the highest private savings rate since 1992,” it says. In return, consumption will shrink accordingly. In the coming year, the share of savings in disposable income with the expected economic recovery will drop to 11.3 percent.

According to DZ Bank, uncertainties about job security and income prospects in particular contribute to a greater propensity to save. This would, for example, buy less durable consumer goods such as cars.

“There are also consumption restrictions due to the ‘lockdown’ when traveling on holiday, visiting restaurants, leisure activities, clothing or at the hairdresser, which can only be partially made up later,” said the economists.

As a result, private consumption in Germany is expected to fall by 2.8 percent, which would be the worst slump since reunification. The slump in consumption increases the proportion of savings in disposable income.

For some of the households, the crisis is associated with a considerable drop in income – for example for the self-employed and short-time workers. This contrasts with 21 million pensioners who will receive significantly more pensions from July.

Overall, the disposable income of private households is expected to shrink by 1.1 percent this year, according to the DZ Bank experts. That would be the first decline since the 2009 financial crisis.

More: Households still have immense savings. However, achieving returns has become even more difficult.