What the shutdown costs the economy

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What the shutdown costs the economy

A large part of the German economy is currently frozen. Shops are closed, events are canceled, entire factories stand still at industrial groups. Volkswagen completely stopped production in Europe for two to three weeks. The situation is similar at BMW, Daimler and Opel. For Lufthansa and the travel group Tui, observers are already anticipating partial nationalization.

Small businesses also come under enormous pressure. In addition to restaurateurs and retailers, this now also affects artisans who are allowed to continue working in theory. “The order books, which are still full to the last minute, are emptying at such a pace and scope that many companies that were in good shape just a few weeks ago are already getting down to business,” says Holger Schwannecke, general secretary of the ZDH craft association. “Turnover slumps, customers stay away and orders are canceled to an unprecedented extent.

There has never been such a standstill in the economy in the post-war period. “The costs are expected to exceed everything known in Germany from economic crises or natural disasters in recent decades,” says Clemens Fuest, President of the Munich Ifo Institute.

What it costs the company

Together with his employees he did the calculations. A standstill of two months would cost the companies at least EUR 255 billion. However, they assume that the economy will recover quickly. If, on the other hand, it takes longer because companies go bankrupt in the meantime and consumers continue to hold back, the costs would be much higher: they could then be almost EUR 500 billion. And the longer the shutdown takes, the bigger the bill. With a three-month standstill, the costs rise to 350 to 730 billion euros. Every week that the shutdown is extended, it costs the German economy between 25 and 57 billion euros.

How much the economy is shrinking

So Germany can hardly avoid a recession. The only question is how strong it is. Freiburg economist Lars Feld, who is also a member of the Federal Government’s Council of Experts, believes a 10 percent decline in gross domestic product is realistic. For comparison: in 2019 it grew by 0.6 percent, which was very little.

Volkswagen hat die Produktion in Wolfsburg eingestellt. Der Parkplatz ist leer.

Volkswagen has stopped production in Wolfsburg. The parking lot is empty. Photo: imago images / Jan Huebner

This will also have consequences for the labor market. Many companies are now sending their employees on short-time work – more than six million employees could ultimately be affected. Nevertheless, many companies will have to cut jobs. The Ifo Institute expects 1.8 million people to lose their jobs due to the corona crisis. “This overshadows the situation at the height of the financial crisis,” says Fuest.

How many companies go bankrupt

It is currently still unclear how many companies the federal government has decided with the aid payments and keep promotional loans alive. Especially in retail, many companies fear for their existence. German retailers, whose shops remain closed, currently lose 1.15 billion euros in sales every day. It is simply not possible to continue paying salaries, rent and insurance for several weeks without income – many of them lack the reserves. Without state help, this means bankruptcy for numerous traders, according to the trade association HDE.

Many companies that had problems before the Corona crisis will go bankrupt, but thanks cheaper loans kept afloat. A first example of this is the Vapiano restaurant chain. It grew too quickly after the IPO and opened restaurants in more and more countries, some of which have by no means made a profit. When the guests stayed away due to Corona and the shops had to close completely, the company was bankrupt. Others are likely to follow. The next company, the Maredo steak house chain, already filed for bankruptcy on Tuesday.

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