‘Arduous route back to normality’: German economy to shrink 5.4 percent in 2020

Germany's economy will shrink more than expected in 2020 and not regain strength until end-2021, leading research institutes said Wednesday, as a coronavirus resurgence weighs on the recovery.

'Arduous route back to normality': German economy to shrink 5.4 percent in 2020
A waiter walks past empty tables in beach resort town Stralsund on Tuesday. Photo: DPA

German gross domestic product will contract by 5.4 percent, deeper than a previous prediction made in April of 4.2 percent, according to five think-tanks including Ifo, DIW and RWI in their annual autumn report.

“Although a good part of the slump from the spring has already been made up, the remaining catch-up process represents the more arduous route back to normality,” said Stefan Kooths, head of economic research at IfW Kiel.

Sectors dependent on close social contacts, such as food and drink, tourism and events, have been particularly hurt by the pandemic and will “continue to suffer for some time to come and will not participate in the recovery process until infection control measures are largely eliminated,” Kooths said.

Growing strain

Although Germany has so far coped better with the pandemic than many of its neighbours, it recorded more than 5,000 new cases on Wednesday, the highest level since April.

READ ALSO: Germany reports more than 5,000 new coronavirus cases within a day

Limits on overnight stays and early closures of bars and restaurants are already in place in several major German cities, including the capital Berlin and the country's financial centre, Frankfurt.

German Economy Minister Peter Altmaier said in September that the economy would contract 5.8 percent in 2020 on the back of a V-shaped recovery, a prediction that will be severely tested in the coming months.

The greatest risk to the forecast remains the course of the pandemic, the report says.

“The economic downturn is less severe than feared. However, the economic recovery will be tougher than we would like,” said Martin Wansleben, managing director of the Association of German Chambers of Commerce.

“A second general lockdown could lead many companies to economic ruin.”

The years ahead

Pre-crisis levels of economic output will “probably not be reached until the end of 2021”, the report said, with GDP set to grow 4.7 percent next year, compared with an earlier forecast of 5.8 percent.

For 2022, the experts predict 2.7 percent growth.

The downgraded forecasts add to a string of gloomy data coming out of Europe's top economy.

On Tuesday, a closely watched survey by the ZEW institute showed that investor confidence plummeted in October on rising coronavirus numbers and renewed Brexit tensions.

The German economy initially bounced back sharply after it emerged from the spring lockdowns in early May, allowing consumer spending and exports to ramp up.

But the momentum has slowed in recent weeks and fears are mounting about the impact on Germany's crucial export sector as countries around the world reimpose restrictions to halt a resurgence in Covid-19 cases

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Pandemic in Germany unlikely to end this year, says top virologist

High profile German virologist Christian Drosten believes Germany will see a severe spike in Covid infections after summer, and that the pandemic will not become endemic this year.

Pandemic in Germany unlikely to end this year, says top virologist

Drosten previously said that Germany would probably be able to declare the end of the pandemic this year.

But in an interview with Spiegel, Drosten said he had reevaluated his opinion. 

“When the Alpha variant came, it was very surprising for me. When Delta appeared I was sceptical at first, then with Omicron we had to reorient ourselves again. And since January there have already been new Omicron subtypes.

“So I would actually like to correct myself: I no longer believe that by the end of the year we will have the impression that the pandemic is over.”

READ ALSO: End is in sight for pandemic in Germany, says virologist 

Drosten also said that Germany will not see a largely Covid-free summer, which has been the case in previous years, and a further increase in infections in autumn. 

“We are actually already seeing an exponential increase in case numbers again,” Drosten said.

“The BA.5 variant (of Omicron) is simply very transmissible, and people are losing their transmission protection from the last vaccination at the same time.”

In other countries, he said, when the number of cases become high, hospitalisation and death rates also rise again. “Unfortunately, that will also be the case here,” said Drosten, but added: “Overall, however, far fewer people will become seriously ill and die than in 2021.”

Drosten said he expected many more infections from September.

“I hope that the school holidays will dampen the increase in cases somewhat. But from September, I fear we will have very high case numbers,” the head of the virology department at Berlin’s Charité hospital told Spiegel.

READ ALSO: German Health Minister lays out autumn Covid plan

Virologist Christian Drosten at a Covid press conference in 2021.

Virologist Christian Drosten at a Covid press conference in 2021. Photo: picture alliance/dpa | Kay Nietfeld

If the government does not take any action, he predicted there would be a lot of sick leave across all industries. “That will become a real problem,” he said.

Drosten said he did not expect overcrowded intensive care units in Germany.

But the new BA.5 sub-variant, which is becoming dominant in Germany, may affect people more strongly. 

“The wheel is turning more towards disease again,” said Drosten. It is not true that a virus automatically becomes more and more harmless in the course of evolution. “That makes me even more worried about the autumn,” he said.

Drosten recommends wearing masks indoors during the colder months, saying it is “the least painful” measure.

If, in addition, “up to 40 million people could be immunised or given a booster vaccination” before winter, for example by urgently calling for company vaccinations, that would “really make a difference”, Drosten said.

In the long term, he said it’s inevitable that people will become infected with coronavirus.

He said the population immunity due to vaccinations and infections will at some point be so strong that the virus will become less important. “Then we will be in an endemic state,” said Drosten. In the worst case, however, this could take “several more winters”.

However, Drosten warned against people trying to deliberately infect themselves with Covid, saying getting the infection in summer doesn’t mean people will be protected in winter. 

Drosten himself said he has not yet contracted Covid-19.

“So far, I guess I’ve just been lucky,” he said. “I rarely put myself in risky situations, but I’m not overly cautious either.”

‘Pandemic depends on behaviour’

According to the Robert Koch Institute (RKI)’s latest weekly report, more outbreaks are occurring in care homes, and the number of patients in intensive care units is slightly rising as infections go up. 

The institute said there had been a 23 percent increase in the 7-day incidence compared to the previous week. On Friday the 7-day incidence stood at 618.2 infections per 100,000 people. There were 108,190 infections within the latest 24 hour period and 90 deaths. 

“The further course of the pandemic depends not only on the occurrence of new virus variants and the uptake of vaccinations on offer, it also depends to a large extent on the behaviour of the population,” said the RKI.

According to the DIVI intensive care register, the number of Covid-19 patients in ICUs had increased to 810 on Thursday this week, from about 600 at the beginning of the month.

However, that number is still low compared to previous Covid peaks when thousands of people were in intensive care in Germany.