In February, institutions such as KfW and the IMF still expected slightly reduced economic growth due to COVID-19. However, these forecasts were always based on the assumption that the epidemic would remain limited to China. This has not happened, however—now automakers are closing their factories, international corporations are demanding state aid, and the first countries are applying for emergency aid from the IMF. What is COVID-19 doing to the global economy?
End of February KfW projected GDP growth in Germany of only 0.8 percent for the full year 2020 (previous forecast: +0.9 percent), while the IMF revised its previously expected global economic growth for 2020 downward from 3.3 percent to 3.2 percent. Both institutes expected COVID-19 to remain primarily confined to China and to subside in a few weeks. After that, the Chinese economy should return to normal relatively quickly.
However, this hope was not fulfilled, and the virus has since spread worldwide: The WHO officially declares it a pandemic. It is difficult to estimate the economic impact, which is why KfW, the IMF, and other institutions are holding back on new forecasts. The management consultancy McKinsey it simply says:
"It will take until the fourth quarter for the European and US economies to truly recover. Global GDP in 2020 will decline slightly."
And the ECB is also keeping quiet. However, became known from EU diplomatic circlesthat ECB President Christine Lagarde expects a drastic slump in economic growth of between 2 and 10 percent.
Car manufacturers close factories, retailers fear for jobs
The impact of COVID-19 on the economy is clearly visible: not only have global stock indices lost massive points, but the first major corporations are also reacting. Numerous car manufacturers, such as VW Group, the French PSA, Daimler and BMW have announced that they will temporarily close their factories in Europe. The manufacturers are not only concerned with enabling employees to stay at home and thus minimizing their risk of infection. They are also facing major economic problems: For example, the car market in China has almost completely collapsed. In February 2020, 80 percent fewer vehicles sold than a year earlier. And in the 27 EU countries, according to the European industry association Acea In February, new registrations fell by 7.4 percent to 957,052 cars. Germany saw the sharpest decline, at 10.8 percent.
Retailers in Germany are also making demands: In view of a potential wave of bankruptcies and the loss of numerous jobs, the HDE industry association addressed a letter to Chancellor Angela Merkel. It calls for swift and comprehensive assistance for the numerous retail companies whose stores have been forced to close to contain the coronavirus. HDE President Josef Sanktjohanser explained:
"The coronavirus epidemic is presenting our industry with enormous challenges, unprecedented even during the financial crisis. Massive revenue losses are destroying thousands of independent businesses and millions of jobs. Affected are many small textile retailers, shoe and sports shops, perfumeries, furniture retailers, electronics stores, and department stores. But many online retailers are also suffering from the coronavirus-induced consumer restraint, with sales declining by 20 to 30 percent."
Government support for companies
The government has already pledged numerous measures to support the economy in the wake of COVID-19. For example, the state of Bavaria has approved a rescue package for the economy affected by the coronavirus crisis. This includes emergency aid of up to €30,000 for companies. Furthermore, the Bavarian state government increased the guarantee framework for the LfA Förderbank Bayern (Bavarian Development Bank) to €500 million. Minister of Economic Affairs Hubert Aiwanger says:
"With this comprehensive package, we demonstrate our determination to save as many companies as possible. The goal is to preserve the liquidity of companies, the core substance of our economy, and as many jobs as possible through the crisis."
The German government has also announced numerous measures as part of its protective shield for employees and companies, the first of which have already been implemented. These include new rules for the granting of loans by KfW and for applying for short-time work benefits. Furthermore, taxes and social security contributions can be deferred. We have summarized all measures and the most important contacts for companies in this article.
The European economy should also receive financial support from the EU. For example, Member States will not be required to repay any unused pre-financing from the European Structural and Investment Funds this year. Instead, the Commission intends to oblige Member States to use these amounts to accelerate their investments under the Structural Funds. They should use these funds for national co-financing, which they would normally have had to provide themselves in order to receive the next tranches from the Structural Funds. Given the average co-financing rates in the Member States, these €7.5 billion will release around €17.5 to €18 billion in structural funds across the EU.
COVID-19 and the international economy
In the USA, the struggling US aircraft manufacturer Boeing 60 billion US dollars demanded from the state to deal with the current crisis. Tesla In turn, it has to close its plant in California. To counter the economic consequences of the pandemic, US President Trump announced cash payments to private individuals. This is intended to boost consumption and compensate for any lost wages. In addition, the US Federal Reserve lowered its Key interest rate at 0.25 percent, a historic low.
China has first Figures published, which demonstrate the massive damage COVID-19 has caused to the local economy. Industrial production in January and February fell by 13.5 percent year-on-year. Retail sales also declined significantly, falling by 20.5 percent year-on-year. Investments in industrial facilities also plummeted by 24.5 percent.
To cushion the economic impact of the COVID-19 pandemic on low-income and emerging economies, the IMF is providing approximately $50 billion. Of this, $10 billion is available interest-free for the poorest members. Venezuela, which is struggling economically, was the first country to request $5 billion from the fund. There are currently 33 officially confirmed cases of COVID-19 in the South American country (as of March 18). However, the IMF declined to disburse the aid. Due to the ongoing power struggle in Venezuela, there is no clarity among IMF members. who is considered the legitimate leader of the country.
The economies of Italy, Spain, and Greece are also receiving special attention. While the COVID-19 situation in Greece still appears to be under control, Italy and Spain have already declared a national emergency—with likely serious consequences for their economic performance. TAZ is therefore already warning of the return of the euro crisis, which was thought to have been overcome.
