“We have to expect even lower growth”
The head of the Expert Council explains why he was too confident at the beginning of the Corona crisis – and what the government should do to help the economy.
Mr. Feld, German economic output already fell significantly in the first quarter, but the next figures will be far worse. Hand on heart: Are the 2.8 percent minus that the Council of Economic Experts forecast in its special report at the end of March still roughly realistic?
The Expert Council did not make a forecast, but presented scenario calculations based on certain assumptions. A growth rate of minus 2.8 percent would have been possible with five weeks of lockdown and three weeks of gradual relaxation. The easing should have started at Easter. The subsequent extension of the lockdown carried us into the second scenario presented by the Council with minus 5.5 percent this year. And even that is too optimistic given the first hard numbers.
For an exporting nation like Germany, how quickly the economy will recover depends largely on the trading environment. Now it looks as if the recovery in most other countries will be a long time coming – the United States, for example, has been particularly hard hit by the Corona crisis, associations such as the BGA are expecting “double-digit declines” in the coming months . Did you underestimate the collapse in foreign trade in your calculations in March?
Yes, we were overly optimistic about developments in the United States, even in the minus 5.5 percent scenario. That is one of the reasons why one has to expect even lower growth this year.
Some economists also expect domestic consumption to decline by up to 10 percent for the year as a whole. In service industries such as gastronomy, catch-up effects are only to be expected to a limited extent. Assuming the easing of containment measures continues: Where should growth impulses come from in the second half of the year?
Monetary and fiscal policy provide powerful impetus. When the uncertainty of consumers and investors subsides, they will consume and invest again. Consumption desires are no less than they were before the crisis, it is only questionable whether they can be financed. The companies definitely see the need for investments due to the structural change. Catch-up effects are not expected for some services, but can be expected for durable consumer goods.
The assessments of whether economic stimulus programs are needed and, if so, which ones, differ widely. What do you expect politicians to come to an agreement on?
I fear that we will get a hodgepodge of sector-specific measures. I hope for general measures, such as making it easier for companies to carry back losses or state investments in infrastructure, especially for digitization and climate protection.
There are increasing voices that supply chains must be reconsidered and more production must be brought back to Germany, especially in the medical sector. Can this work and if so, is it advisable?
I do not believe in this idea of deglobalization. Neither Germany nor the EU should aim at self-sufficiency. The international diversification of value chains is more likely to protect against shocks when individual countries are more severely affected than others, or when the asynchrony of growth processes allows for unevenly rapid recovery. It is true that international diversification has to increase in order not to be dependent on individual suppliers in the value chain. And anyway: who knows what characteristics the next shock will have? One cannot protect oneself against all possibilities and certainly not through self-sufficiency.