Germany suffers $366bn hit from Covid-19 fallout

Bloomberg

Germany has suffered a 300 billion-euro ($366 billion) blow from fallout linked to the coronavirus and the economic damage will take years to fix, according to research group IW Cologne.
The pandemic is projected to slash about 100 billion euros ($122.59 billion) from the output of Europe’s largest economy in the first half of 2021, adding to the hit last year, the research institute said. While a faster vaccination program is promising, the impact of lockdowns will leave a mark.
“It will take years for the losses and structural distortions to be balanced out,” Michael Huether, director of the Cologne-based researcher, said in an emailed statement. “The vaccination rate is finally increasing, and that’s a signal to the economy that shouldn’t be underestimated.”
The total impact represents about 9% of Germany’s annual gross domestic product. The country’s economy is enduring a moment of flux as it tries to shake off the crisis, just as the era of Chancellor Angela Merkel draws to a close.
Germany has begun easing lockdown measures as infections fall. The country reported 62.5 cases per 100,000 people over the previous seven days, the lowest rate since late February.
After a sluggish start, vaccinations have accelerated and some 40% of the population has received at least one shot and about 14% are fully inoculated, according to the German Health Ministry.
German business
confidence improves
Confidence in Germany’s economic outlook improved in May after the nation’s vaccination campaign progressed and authorities started to loosen coronavirus restrictions.
The Ifo institute’s gauge of business expectations for the next six months rose to 102.9, exceeding all but one estimate in a Bloomberg survey. Current conditions were also assessed more positively, after the economy shrinks 1.8% in the first quarter.
German authorities have started to loosen curbs on economic activity, gradually allowing shops and restaurants to reopen after the nation’s vaccination campaign picked up speed and infection rates fall. About 40% of the population has now received at least one shot.
Fuelled by large amounts of household savings and pent-up demand, the economy is set to rebound strongly in the coming quarters. The International Monetary Fund last week said it expects output to return to pre-crisis size early next year. The Bundesbank is more optimistic and predicts it could already happen at the end of 2021.
But there are still some risks that could derail the recovery. New variants of the virus could force the government to impose new restrictions, and many businesses are suffering from supply-chain constraints for which there is no end in sight.
In the first quarter, the economy suffered a 5.4% slump in private consumption. Trade also was a drag on output.