Corona virus: effects on the German economy

I am used to work from my home office in Starnberg, near München, where also a few of the first German Covid-19 cases were reported. So, not much is changing for me except that shows, flights and meetings are cancelled, and I take care to protect myself as I reached 60 years of age.

Restrictions in public life

Although still relatively few people infected with corona have been reported in Germany (5,381 today) the numbers are growing fast and follow the Italian curve. It’s just logical that preparations and measures to contain the virus pandemic are in full swing. Merkel expects that the infection rate could reach 60% of the populace in a worst case.

Almost all federal states currently announce that the children are no longer allowed to go to school or daycare centers from Monday till the end of the Easter holidays (March 30 – April 14, 2020). This will be a major challenge for working parents.

Additional restrictions on physical shopping or visiting cafes and restaurants are expected in the coming days and weeks.

Chancellor Merkel recommends that everyone should take tough measures to avoid social contacts. There are no general restrictions nationwide, but the federal states set their own criteria for canceling major events.

Effects on the world of work

In many companies, there have been travel restrictions for employees for some time and instructions are increasingly being given to employees not to come into the company but to work in the home office.
Previously, almost all trade fairs that were to take place in Germany within the coming eight weeks have been canceled or “postponed” (Hannover Messe, Internet World Expo, ITB).

The stock exchange prices (see DAX) have crashed by approximately 30% due to the spread of the corona virus.

The supply chain for products that are dependent on supplies from China is disrupted and this leads to significant supply bottlenecks. E-commerce companies struggle when they have their warehouses in China or get the goods from there, and are looking for alternatives.
At the same time, there are more and more cases of panic purchases by citizens, which mainly hoard basic food. This leads to significantly higher sales in the food industry, although figures are currently not available nationwide.

According to a survey by DIHK (German Industry and Trade Association) among 10,000 companies, 47% of companies anticipate a drop in sales this year and more than 25% a larger loss in sales of 10%+. Some industries, such as the hospitality and travel industries, expect sales to drop by more than 75%! Ravaging.

The corona crisis also leads to the increased production of e.g. hand disinfection devices such as Steripower, produced by a small company in my hometown.

Policy contingency plan

Politicians assume that there will be severe burdens for the economy and the population in the next 2-3 months. The mobility of workers is increasingly restricted and the production goals can no longer be guaranteed. Childcare etc., which can be ensured at short notice by using vacation days, will lead to further burdens in the world of work.
In order to avoid the bankruptcy of otherwise healthy companies and a sharp rise in unemployment in this situation, the following legal measures are currently being adopted:

• Simplified regulations (e.g. working time limits) to bring employees into short-time work. This leads to significantly lower costs for the companies, but also for the employees: a higher income than from unemployment insurance.
• In order to protect companies from bankruptcy, the federal bank KfW provides loans and liquidity support to companies that have stumbled due to the corona crisis. This includes unlimited liquidity protection by the federal government.
• Significant increase in the federal government’s investment volume to ward off a recession caused by the corona crisis.
• Support hospitals in postponing operations that are not essential to make room for the treatment of people with corona.
• The federal government assures that enough money is available to support all companies and workers. The most important goal is to slow down the spread of the corona virus so as not to overload the generally stable healthcare system in Germany and to provide all patients with the treatments they need.

First lessons learned

There is an opportunity in every crisis. The digital industry should invest even more in digitization to make home office and web conference technology the operational standard.

Achim Berg, President of Bitkom (branch association of the German digital industry)

We will see what further measures will be necessary for the next few days and weeks in Germany to survive the risk posed by the Covid-19 virus.

Ulrich Silberbach