The City of Munich has presented its 2020 Annual Economic Report. It provides initial figures on which sectors of Munich's economy have been hit particularly hard by the crisis and the tax revenue shortfalls the city expects.
Munich's economy was in a remarkably favorable situation when the coronavirus crisis broke out. Unemployment at the end of 2019 was at 3.3 percent, the lowest level in 22 years. A total of 897,140 people in the state capital were employed subject to social insurance contributions—more than ever before. The purchasing power of Munich residents also reached a new high of €33,705 per capita at the end of last year, 42 percent above the national average. Nevertheless, the state capital expects dramatic declines in some sectors due to the coronavirus crisis.
Sectors affected very unequally by the crisis
The collapse in consumption of high-value consumer goods such as cars, as well as disrupted international supply chains, have hit the manufacturing sector hard. Sales in this sector fell by 36.7 percent from March to April 2020, and foreign sales by 34.9 percent. Tax revenues from this sector plummeted by 41 percent. 16 percent of Munich's workforce work in the manufacturing sector, which contributes 24 percent of Munich's value added.
The hospitality and tourism industries have been hit even harder. The lack of major events and trade fairs, coupled with severely restricted tourism, has caused a massive slump in this sector. The cancellation of Oktoberfest alone will result in revenue losses of €1.23 billion. In April, revenues already plummeted by more than three-quarters compared to March. 28.4 percent of employees lost their jobs.
The crisis has impacted the retail sector to very different degrees. While clothing, textile, and shoe stores suffered a decline of over 80 percent, food retailers recorded a 13.4 percent increase in sales.
The report predicts that the cultural and creative industries will suffer losses that threaten their very existence and will be difficult to recover from. Continued restrictions, the cancellation of major events, and cuts to marketing and cultural budgets will continue to create a precarious situation beyond the coming months.
The consequences of the crisis are also already visible on the labor market: instead of the usual spring recovery, the unemployment rate rose by 0.8 percentage points to 4.3 percent in April and again in May to 4.8 percent.
The state capital is preparing for immense revenue shortfalls. In the so-called base-case scenario, the city administration expects a 5 percent decline in Munich's gross domestic product. This would result in lower tax revenues of approximately €662 million this year. Austerity programs and borrowing are expected to offset the revenue shortfalls.
'Recovery projects' aim to help Munich's economy get back on its feet
The state capital is attempting to mitigate the effects of the crisis through a variety of economic policy measures. For example, businesses can defer their tax payments. Munich commercial courtyards grant their tenants deferrals. Referat für Arbeit und Wirtschaft, ReDI School Munich and UnternehmerTUM have Initiative 'We're going online!' Retailers are supported in their digitalization efforts. The #muenchenhältzamm initiative created an online marketplace for Munich's businesses during the lockdown. Restaurants are temporarily allowed to expand their outdoor seating areas free of charge.
As part of so-called 'recovery projects,' the city administration is also developing strategies to rebuild Munich's economy after the crisis. The Referat für Arbeit und Wirtschaft aims to strengthen the city's digital infrastructure and expand fiber optic and mobile networks. Munich also aims to become a pioneer in the use of blockchain technology.
"The Corona crisis has serious consequences for Munich as a business location. How quickly the city can recover will depend on how quickly resources are found to combat the Corona pandemic,"
says Clemens Baumgärtner, Advisor for Labor and Economic Affairs.
"We recognize that even a highly diversified location like Munich cannot protect itself from the consequences of a lockdown. However, as a dynamic business, knowledge, and innovation center with a high proportion of high-tech industries, Munich has all the prerequisites to meet these challenges. In addition, I want to use all the municipal economic policy tools at my disposal to mitigate the consequences for all industries based in Munich."
