Recession with clear consequences for the labor market

Recession with clear consequences for the labor market

According to a forecast by leading economic research institutes, the severe economic consequences of the corona crisis will leave clear traces on the labor market.

At its peak, the unemployment rate will skyrocket to 5.9 percent and the number of short-time workers to 2.4 million, according to the institutes’ spring report. It will be presented on wednesday and was available to the german press agency in advance.

On average, unemployment will rise by just under a quarter of a million to 2.5 million compared with the previous year, it says. The recession is also having an impact on the disposable income of private households, which will fall this year for the first time since the global financial and economic crisis of 2008/09.

Economic activity in germany slumps drastically as a result of the corona pandemic, says report. In order to slow down the wave of infections, the government had severely restricted economic activity in germany. As a result, gross domestic product was allowed to shrink by 4.2 percent this year.

In the first quarter of 2020, gross domestic product (GDP) was already expected to shrink by 1.9 percent compared with the previous quarter, the institutes forecast. The federal statistical office will publish the first estimate for the first quarter on 15. May submit. In the second quarter, according to the report, unemployment will fall by 9.8 percent as a result of the shutdown. This was the sharpest decline ever recorded in germany since the start of quarterly accounting in 1970 and more than twice as severe as that recorded during the global financial crisis in the first quarter of 2009. For the coming year, the institutes predict a recovery and growth of 5.8 percent. According to the report, the recovery could already begin in the third and fourth quarters of 2020, with GDP growth of 8.5 and 3.1 respectively compared to the previous quarter.

It is further stated that both the wage bill and income from self-employment and property will decline in the current year. This will be countered by the accelerated increase in monetary social benefits as a result of rising short-time work and unemployment. The purchasing power of private households will be reduced in the current year by the lower price increase, which is mainly the result of the crash in raw material prices. According to the report, consumer prices will rise by only 0.6 percent this year.

However, the forecast is associated with considerable downside risks, for example because the pandemic will weaken much more slowly – or because the resumption of economic activity will be less successful than assumed or a new wave of infection will be triggered.

The institutes involved in the joint diagnosis are ifo, DIW berlin, i kiel, RWI essen and IW halle. In their report, they are slightly more optimistic than the federal minister of economics, peter altmaier (CDU), but more pessimistic than the "wirtschaftsweisen".

Altmaier had recently said that the cuts in economic growth were at least as severe, if not more severe, than in the financial crisis of 2009. At that time, gross domestic product (GDP) had fallen by 5.7 percent. At the end of march, the "economic experts" had assumed in a special report that the most probable scenario at present would be a temporary "shutdown" followed by a short recovery phase. In this case, germany’s gross domestic product is expected to shrink by 2.8 percent in 2020, only to grow by 3.7 percent the following year.

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