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.
Read more: Euro-Area Confidence Posts Record Drop With Economy in Lockdown
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 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 ECB has already stepped in with emergency stimulus, and the German government has joined its peers in promising to do its utmost to protect workers.
©2020 Bloomberg L.P.
Source: Economy - investing.com
