Retail economist advises buying premiums for cars

The economist Dalia Marin warns of the consequences of broken supply chains. Many would underestimate the onset of the Corona crisis. Saxony’s Prime Minister Kretschmer agrees.

A BMW employee wearing a mask at the Dingolfing plant

Dhe corona pandemic is likely to cause significantly more damage to the German economy than initial calculations in March suggest. The economists at the Kiel Institute for the World Economy announced that they expected a decline in gross domestic product (GDP) of 7.1 percent for the year as a whole. The low point of the crisis has been overcome, but the catching-up process will drag on well into the coming year. At the end of last week, Lars Feld also admitted that the base scenario of minus 2.8 percent expected by the Council of Economic Experts would only have been possible this year if the easing of containment measures had already begun at Easter. In view of the first hard numbers, the extension of the lockdown now makes even the risk scenario of minus 5.5 percent appear too optimistic, according to Feld.

Munich-based trade economist Dalia Marin thinks it possible that even that is an understatement. She points out that in a global comparison, the German economy is more closely interwoven with other countries via sales and value chains and that in many places there is still no sign of recovery. She sees world trade in great danger. “So far, most of the forecasts have assumed that the corona pandemic will not result in any lasting disruption of the supply chains. I don’t think so, “says Marin in an interview with the FAZ.” Our estimates show that the increased uncertainty caused by the pandemic will collapse on average 35 percent of global supply chains in the rich industrialized countries. ” U- or V-shape an L-shaped stagnation.

“Challenge of the century”

“People underestimate the dramatic slump we are experiencing,” says Marin. One can assume that the collapse of the supply chains for the local economy is even greater than 35 percent. Sweden, for example, shows that GDP shrinks, regardless of the respective lockdown, if the economy is open and depends heavily on suppliers from abroad. However, this dependency is not the same in every industry. The German car manufacturers and mechanical engineers, for example, get just 29.1 and 36.9 percent of their intermediate goods from abroad, respectively, explains Marin with reference to data from the research database World Input-Output. For comparison: In the case of the German chemical industry, according to the database, it is 51.8 percent, in the case of the electrical industry 55.9 and in the case of the textile industry even 75.5 percent.

Dalia Marin researches global trade relations at the Technical University of Munich.
Dalia Marin researches global trade relations at the Technical University of Munich.: Image: LZR-Munich

The trade researcher recommends supporting those industries with government economic aid whose suppliers are mainly located in Germany. That has the greatest positive effects. The car manufacturers, for example, are in a complementary relationship to the rest of the economy, while the hospitality industry is in a substitutive relationship with shopping in supermarkets. In other words, the more consumers go to restaurants, the less they buy from supermarkets. But when new vehicle sales are stimulated with purchase premiums, the suppliers also benefit.

“Under normal circumstances, I would not select any sector for funding, but would advise the state to only invest in infrastructure,” says Marin. In overcoming the Corona crisis, however, one is faced with a “challenge of the century”. Technological or environmental requirements should therefore also be omitted. “I am an opponent of tying investments in climate-friendly technologies,” she says, contradicting her colleagues in economics such as the “economic wise man” Monika Schnitzer, who described the purchase of new cars as “pure lobbyism”.

Saxony’s Prime Minister Michael Kretschmer (CDU) made a similar statement to Marin. “We don’t just want to promote electric vehicles – we want to support the automotive industry as it exists now and gives jobs to millions of people,” Kretschmer told the newspapers of the Funke media group. The auto industry has “the chance to pull the whole economy up”. “We have to make the purchase premium simple and straightforward,” he warned and suggested: “The purchase of new cars that are more environmentally friendly than the car that the buyer gives for them is subsidized. But I would restrict it to this rule. “

Purchasing managers index rises

Meanwhile, the purchasing managers’ index for the private sector, which includes industry and service providers, points to a slight stabilization. In May it rose from its all-time low of 17.4 to 31.4 points due to the opening of many factories and shops. However, according to the IHS Markit institute, which surveys hundreds of companies, this is still the second-lowest value since the survey began in 1998. The index only signals growth at a value of 50. Economists polled by the Reuters news agency had expected a stronger increase to 34.1 points.

Markit economist Phil Smith said the decline in economic activity is slower. “But we are still far from normal and the road to recovery remains rocky.” The index suggests that there will be a record decline in the second quarter.