Germany Vows to Counter Virus Curbs With Massive Company Aid

(Bloomberg) -- Germany promised “massive” support for companies affected by a month-long, partial shutdown to safeguard the economy’s tentative recovery from the fallout of the coronavirus.

“The situation is serious even if it’s not evident for everyone,” Finance Minister Olaf Scholz said Thursday at a joint news conference with Economy Minister Peter Altmaier. “November is the month of truth” in the fight against the pandemic.

Scholz and Altmaier gave details of an aid program worth 10 billion euros ($11.7 billion) to businesses affected by the November shutdown. The measures, which begin on Monday, include closing bars, restaurants and leisure facilities and limits on travel and social contact.

Under the government’s assistance program, businesses forced to shut during November will receive 70% of their revenue from the same month a year earlier, or 75% if they have 50 or fewer employees.

The aid will be financed from Germany’s 2020 budget without the need for new debt, Scholz said, adding that the government can still afford more measures if necessary.

Chancellor Angela Merkel on Thursday defended the renewed restrictions that will also shutter gyms and cinemas but allow schools and most other businesses to remain open. In a speech to the Bundestag, she warned that a national health emergency is looming that could stretch medical services to their limit.

Altmaier said the contraction this year could end up being less severe than expected because of previous measures to safeguard the economy. He will present updated growth forecasts on Friday.

The government expects the economy to shrink 5.5% this year -- slightly smaller than a previous prediction of 5.8% -- and growth of 4.4% in 2021, according to people familiar with the forecasts.

Bloomberg Economics estimates the latest measures to control the virus, if limited to one month, will cut the expected pace of economic growth this quarter to about 0.5% from 1.1%. Stricter measures that close schools would probably mean a contraction.

What Bloomberg Economics Says:

The alternative to fresh curbs (doing nothing) would arguably be more economically costly. As infections increase, consumers voluntarily curtail their activity. That’s the lesson from Sweden. The cost of an untamed outbreak would therefore be substantial.

-- Jamie Rush and Maeva Cousin. Read the full INSIGHT

The government will also ease access for small companies to preferential loans from state-owned bank Kreditanstalt fuer Wiederaufbau. Among those who will benefit are hotels, restaurants, event organizers and artists.

Merkel’s chief of staff, Helge Braun, said Thursday that the government’s aim is for activity to resume fully in December. That month is “the most important month for many sectors of our economy,” he said on ARD television.

©2020 Bloomberg L.P.