German Government Advisers Warn of Worst Recession Since 2009
If restrictions last longer or production is further halted, the economy could contract by as much as 5.4%.
(Bloomberg) --
The German government’s economic advisers predict that the coronavirus pandemic will give the nation its worst recession since the global financial crisis.
Even if most business and movement restrictions are lifted in mid May, allowing the economy to recover through the summer, output is expected to shrink by 2.8% this year, according to a report by the German Council of Economic Experts.
If restrictions last longer or production is further halted, the economy could contract by as much as 5.4%. Either outcome would be the deepest downturn since 2009.
The wide-ranging estimates reflect the challenge economists face in capturing the extent of the disruption, which has swept across Europe and the world in a matter of weeks.
A separate report Monday showed economic sentiment in the euro area plunged the most on record as prospects dwindled that life will return to normal any time soon.
The German council said traditional stimulus measures to boost short-term economic activity aren’t promising since lockdowns to contain the disease have brought large parts of public life and business to a standstill. Instead they say the government should focus on steering business and household expectations for the period after restrictions are lifted to accelerate the recovery.
That includes timely communication on what tools will be made available and making clear what criteria need to be met in order for current restrictions to be phased out.
The German government has announced a 750 billion-euro ($830 billion) support package and has promised to do its utmost to protect workers.
The council of experts also said that a clear commitment at euro-area level to provide additional fiscal instruments if needed could also help stabilize financial markets. That could include the use of the bloc’s bailout fund, the European Stability Mechanism, and bond purchases by the European Central Bank via crisis programs such as Outright Monetary Transactions.
The German economists couldn’t agree on a joint position on so-called coronabonds, they said in a conference call with journalists. While some supported the idea of sharing risks by pooling regional debt securities, others were skeptical so it wasn’t included in the suggestions to the government.
ECB Vice President Luis de Guindos said earlier on Monday that he’s in favor of coronabonds. His central bank has already stepped in with emergency stimulus, pledging to spend at least a trillion euros buying debt this year and offering extra-cheap loans to banks.
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