German Economic Institute (IW) said in the “positive scenario”, the coronavirus lockdown would last until end of April. GDP growth of the country in 2020 would be around -5% lower than without the pandemic. Industry could lost around -10%. Loss in private service provider would be similar to the broader economy. But in individual areas such as the hospitality industry, double-digit losses can be expected. In this scenario, rapid recovery will begin in may and the crisis could be over by autumn. The V-shaped response would be that at best, the crisis will be almost as severe as the 2009 financial crisis, but broader.
In the “negative scenario”, lockdown could last until end of June and then catch-up process is less intensive. GDP growth would be lowered by -10% compared to the normal course. Industry would be hit hard by -18% and private service by -11%. A U shape economic activity form would be seen in which the upswing would only start at the beginning of Q3. There would be further downward dynamics if companies collapse in large numbers and confidence of consumers and investors cannot be regained. Such a decline would be “unprecedented” and would “fundamentally question the foundations of our prosperity”.
IW added: “A particular problem is the lack of, or even a total lack of, international coordination of the crisis response. There is no coordination on border closings, common solutions and strengthening foreign trade in order to increase flexibility on the supply side. Economic self-sufficiency and foreclosure are not the necessary conditions for national civil protection, but complicate adaptation and hinder recovery. As in 2008, the G20 must develop a common understanding of the crisis and define an action framework. The euro area must assume shared fiscal responsibility to prevent disintegration. To ease the burden on the ECB, corona joint bonds must therefore be examined.
