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Europe's economy is shrinking : 10 reasons why Germany is getting through the crisis better than other countries

This number can be frightening: the German economy collapsed by 2.2 percent in the first quarter. There has not been such a sharp decline within three months since the financial crisis. It is also the second largest slump since reunification.

But as dramatic as this is, it also shows that the Federal Republic is still coping comparatively well with the consequences of the corona pandemic. "Compared to many other countries, the German economy should come out of the crisis faster and better," says Katharina Utermöhl, Senior Economist for Europe at Allianz.
In the USA and Great Britain people are already looking at Germany with envy. The US broadcaster CNN explains what President Donald Trump can learn from Chancellor Angela Merkel about dealing with the corona virus. The New York Times jokes that the CDU politician would be the perfect Vice President alongside Joe Biden. And the British Economist states: "If you can say of a large European country that it has come through the Corona crisis well so far, then that is Germany."

Because as hard as the economic slump is in this country, things are still going comparatively well. This is what these ten points of hope show.

1. Other countries do much worse

"In a European comparison, the decline in gross domestic product in Germany was still moderate," says Albert Braakmann from the Federal Statistical Office, who presented the quarterly figures on Friday.

For example, France is in a much worse economic position than Germany: the minus in the first quarter was 5.8 percent there, which is the largest it has been since the end of the Second World War. Not even in 1968, when student unrest and a general strike paralyzed France, did the economy collapse within a quarter as badly as it did last. Other EU countries also report much higher losses than Germany: In Italy the economy shrank by 4.7 percent in the first quarter, in Spain by 5.2 and in Belgium by 3.9 percent.

2. The prognosis for Germany is comparatively good

The latest forecasts for the year as a whole indicate that Germany will come through the crisis better than most of its European neighbors. The EU Commission is also expecting an economic slump of 6.5 percent in 2020 for the Federal Republic of Germany. For other countries in the euro zone, however, the forecast is much bleaker: For France, Brussels is predicting a minus of 8.2 percent. The Corona crisis also hits Spain, Italy and Greece particularly hard, where economic output is likely to collapse by more than nine percent each. Only for Austria, Finland, Luxembourg and Malta is the forecast better than for Germany.

3. Power consumption drops less than elsewhere

The fact that the Federal Republic of Germany is still getting through the crisis relatively lightly can also be seen in the electricity consumption. It has also decreased in this country: since mid-March by around eight percent on weekdays. But in a European comparison that is a rather small decline, write the experts from the Kiel Institute for the World Economy (IfW). In Spain and Italy, for example, electricity consumption fell by a third. This, too, is a sign that the economy in these countries has been hit much harder. Because most of the electricity is used by industry.

If electricity consumption drops, this means that production will be cut back sharply. Because other economic data are always collected with a delay, economists are currently looking particularly closely at electricity consumption.

4. Germans are still comparatively mobile

In addition: Despite the Corona restrictions, Germans are still quite mobile. Your life has changed much less than in other EU countries. This is shown by the movement data that Google currently publishes regularly for individual countries. The tech group can use the mobile phone data of its users to see in real time how much and where people are moving. Compared to the time before Corona, Germans have reduced visits to shops or recreational facilities by 33 percent. They were also less frequent at train stations (-28 percent) and many of them lost their way to work (-35 percent).

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This means that public life in this country has been frozen much less than, for example, in France, where there was a strict curfew. The number of visits to shops and recreational facilities there has fallen by 69 percent, and that of train stations by 70 percent. The data are similar for Great Britain. That means that the Germans enjoyed much greater freedom of movement despite Corona. This also benefits the retail trade, whose business has also collapsed in this country - but presumably not as violently as elsewhere.

5. The shutdown was shorter

Much currently depends on how long a country has to shut down its economy due to the pandemic. Every week that shops remain closed and factories dormant cost billions. In this way, Germany also benefits from the fact that the lockdown in this country was still comparatively short at just over five weeks. France, on the other hand, has sealed everything off for two months. In addition, in Germany not everything stood still during the shutdown. Work continued on construction, for example.

Not everything was possible there either, for example because there were no workers from abroad, material did not arrive and hygiene rules had to be adhered to. Nevertheless, the capacity utilization of the construction industry in this country has been 70 to 80 percent in the last few weeks. In France, on the other hand, the industry only generated 25 percent of the normal workload. Italy, on the other hand, stopped almost all construction work between the end of March and the beginning of May.

6. The mood in the corporations is better

This is probably one of the reasons why company managers are now looking a little more optimistically into the future. This is shown, for example, by a study by the management consultancy PWC, which currently asks CFOs around the world how they think about the corona crisis. At the end of April, a total of 70 percent said they were very worried. The German CFOs, on the other hand, are much more confident: less than half of them (44 percent) are worried.

7. Germany is less dependent on tourism

How well a country gets through the Corona crisis also depends on the economic structure. Countries in southern Europe such as Italy and Spain are particularly dependent on tourism. "But it will take some time before we see a return to normal in tourism," says Allianz economist Utermöhl. “Even if travel is possible again, the booking numbers will remain below average for a long time to come.” Spain and Italy, of all countries, hit hard those countries in which there were also a particularly large number of people infected with corona.

The German economy, on the other hand, depends primarily on industry. She too suffered from the shutdown and is still feeling the lower demand. The recovery in this sector is likely to be much faster than in tourism.

8. Unemployment rises less rapidly

As it did after the financial crisis, short-time working seems to be proving its worth in this country too. Guy Ryder, head of the International Labor Organization (ILO), for example, is full of praise: He says this is an example for the world of how to deal with the crisis. In fact, thanks to short-time working, German companies seem to be able to keep a large number of jobs. You have to lay off fewer people than the competition from abroad. At least that's what the EU Commission is assuming. It is forecasting an increase in unemployment to four percent for Germany as well. But that is little compared to the 9.4 percent unemployment that Brussels expects on average for the euro zone. In France, more than ten percent of those able to work could end up without a job at the end of the year.

9 Germany's financial cushion is larger

Abroad, Germany's frugality has been repeatedly ridiculed in recent years. After the financial crisis, it was one of the few countries that got its national debt under control. It was last at 62 percent of economic output, which is less than before the last crisis.

In other countries, however, the national debt has risen sharply in the meantime. Before the outbreak of the financial crisis, France was as heavily indebted as Germany, today the national debt in the neighboring country is 98 percent of economic output. In all other G7 countries, too, the national debt has risen sharply in recent years - with the exception of Germany.

10. Germany took countermeasures faster and more strongly

This gives the federal government the necessary financial leeway to now fight hard against the economic consequences of the corona pandemic. In an unusual agreement, the SPD and CDU immediately increased the funds for KfW loans in March, decided on emergency aid for companies, deferred taxes and expanded the short-time work allowance. "The rescue package is so big that it amounts to around 30 percent of economic output," says Utermöhl.

Other countries have cost much less to save their economies. Spain, for example, has only committed twelve percent of economic output, although the country is much more affected by the corona pandemic. Utermöhl expects that this will have consequences.

She assumes that many more companies will make it through the crisis in this country than in other countries in the euro zone. "In Germany, the number of bankruptcies is likely to rise by ten percent, in the entire euro area, however, by 20 percent," she says.

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