The south is languishing in the corona crisis

The south is languishing in the corona crisis

Upside-down economic world in the corona crisis: germany’s south, which has been strong for decades, has been particularly weak since the start of the pandemic. Bavaria and baden-wurttemberg are suddenly in the top group with negative figures.

The number of short-time workers in the two federal states that are accustomed to success is just as above average as the slump in gross domestic product. What is the reason – and is there a bigger problem than just corona??

The bare figures: in baden-wurttemberg, economic output contracted by 7.7 percent in the first half of the year, and by 7 percent in bavaria – both worse than the national average of minus 6.6 percent. And in terms of short-time work, bavaria and baden-wurttemberg ranked first and second nationwide in august, according to the munich-based ifo institute. Nowhere else has the proportion of affected employees been higher than in the past.

The fate of industry, which is very strong in both southern states, depends on exports, which collapsed during the crisis. "The strength of the economy is both a curse and a blessing: a crisis hits these sectors much harder than it does the service sector, which can cope with it more easily," says achim wambach, head of the ZEW economic research institute in manheim. "When supply chains are disrupted, it affects the service sector less than the manufacturing sector."

The economist points out that baden-wurttemberg was also hit harder than average in the financial crisis of 2008/2009. "On the other hand, production also ramped up again very quickly afterwards."

In contrast to many other regions in europe, the importance of the manufacturing sector in southern germany has actually grown again in the past decade. In bavaria alone, the metal and electrical industry (M+E) created more than 160,000 new jobs between 2010 and 2019, according to figures from the local industry associations bayme and vbm.

"We have industries in bavaria and baden-wurttemberg that are very dependent on exports, especially the automotive sector," says jurgen michels, chief economist at bayernlb. "That makes it harder now to quickly get back to the old strength."

The automotive industry was already in trouble before corona: the gradual abandonment of the internal combustion engine poses a major challenge for the southern german manufacturers daimler, BMW and audi, as do international trade conflicts and the aging of the population in the industrialized nations.

"I see more of a problem in the fact that the structure of the economy as a whole is very strongly geared to a few products," says robert lehmann of the munich ifo institute. "If you only have a few mainstays, then in the event of a crisis you will fall into a deep recession. Therefore, it would be a good idea to establish a more broadly based economic structure."

In a joint study with the prognos institute, the bayernlb has recommended a reorientation – away from the previous dependence on exports and toward a greater importance of the domestic market.

But does this mean that southern germany is now doomed to gradual decline?? None of the economists surveyed believe this, but economic success is by its very nature not a self-perpetuating process.

"If countermeasures are not taken, we could end up in a situation where we are at the bottom of the growth scale for a long time," says bayernlb chief economist michels. "But i also think that after a weak phase, we can regain our former strength if we invest in future areas in good time. The first steps in this direction have already been taken."

In their study, bayernlb and the prognos institute cite renewable energies and environmental technology as areas with a promising future. Germany as a whole is in a better financial position than italy or greece, for example, and can demand investments in infrastructure, says michels. "This definitely plays a role."

The situation for exporters is also expected to improve again. China still offers potential, according to ZEW president wambach. "The chinese have a per capita income of 25 percent of the oecd average. We will see a lot of growth, and germany is very well positioned to participate in it." It is true that international tensions are increasing – but on the other hand, the potential is there. "Once the u.S. Election and brexit are over, the eu’s investment agreement with china is concluded – in other words, if there are positive signals, exports will remain a strong."

Robert lehmann of the ifo institute takes a similar view. "The biggest export market for german industry is still the eu," says the economist. "And in other european countries, we see that the industries that demand german products are recovering strongly."The second most important export market is the usa. "If there is a change of government there, the current protectionism could also end again."

The industry itself doesn’t think it makes sense to turn away from the industry at any rate. Overall, the strong industrial structure leads to a more dynamic economic development – and thus to relatively low unemployment figures and a significantly higher overall level of prosperity than in federal states with a lower share of industry, argues the vbw, the umbrella organization of the M+E sector in bavaria.

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