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ifo expects hundreds of billions in costs

Article by Ulrike Knaus (adapted for; translated by Eva Guzely) | 24.03.2020 - 10:35

“The cost is likely to exceed anything that is known from economic crises or natural catastrophes of the past decades in Germany. Depending on the scenario, the economy is going to see a contraction of 7.2 to 20.6 percentage points. This corresponds to costs of € 255 to 729 billion,” said ifo-President Clemens Fuest.

In the best case scenario, the economic performance would fall to 59.6% for two months, slowly start to rise to 79.8% in the third month and would finally reach 100% again in the fourth month. “Three months of partial closure mean costs of € 354 to 729 billion, which is a loss of growth of 10 to 20.6 percentage points,” explains Fuest.

According to calculations by the ifo, additional costs of € 25 to 57 billion accumulate and growth contracts by 0.7 to 1.6 percentage points, if the partial closure is extended for one week only. Fuest continues to explain that for this reason, it will be worthwhile to use nearly any sum imaginable for health policy measures. The aim has to be the reduction of the partial closure of the economy without hampering the fight against the pandemic. Also, strategies must be found which facilitate a return to production coupled with a further limiting of the spread of the virus.

“This crisis leads to massive changes on the labor market as well. Those are worse than the situation at the peak of the financial crisis,” fears Fuest. In the scenarios considered by the ifo, up to 1.8 million jobs subject to social security contributions (or 1.4 million full-time jobs) could be cut and more than six million employees could be affected by short-time work.