Expect a recession by 2020

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Economic development divided into two parts: limited service areas face solid industry

The economic situation was divided into two parts until March: While the service sectors are still restricted by the measures taken to combat the pandemic, the industrial economy has been robust until recently. It is true that industrial emissions fell by 0.5 percent in January compared to the previous month. However, against the background of a very strong increase in December, this decline is more of a breather. Economic activity in the service sectors is meanwhile being shaped by the lockdown measures, although here too there has recently been a little more confidence. In general, as vaccinations progress, there are high hopes that the restrictions will be reduced soon. The further development of the economy depends to a large extent on how sustainably the infection process can be controlled and how quickly this can make further easing possible. However, it is clear that without a sustained containment of the corona pandemic, no “normal” economic activity will be possible.

In retrospect, the economic recovery in the second half of 2020 lost much of its momentum in the final quarter of 2020 due to a second wave of pandemics and the resulting containment measures. According to the detailed report from the Federal Statistical Office, the economy grew by 0.3 percent in the fourth quarter of 2020, which is higher than expected in many places. Nevertheless, after the 8.5 percent increase in the third quarter, the dampening effect of the closings is unmistakable. As expected, this mainly affected private consumption, which is particularly dependent on social contacts. This state of affairs in the service sector continues as before and thus also shapes the economic development in the first quarter of 2021. In contrast, German foreign trade and the closely related industrial economy are robust. Despite the burdens in the service sector, the labor market continues to be stable: Employment has recently increased again slightly, while short-time work has remained almost unchanged.

World economy continues to recover

The global economy continues to recover, but is still overshadowed by the pandemic. Global industrial production increased in December for the eighth time in a row compared to the previous month (+1.3 percent). Global industrial output thus exceeded its pre-crisis level. World trade also continued to expand in December (+0.6 percent) and again exceeded its pre-crisis level. The sentiment indicators suggest a slight recovery in the global economy. The composite purchasing managers' index from J. P. Morgan / IHS Markit rose to 53.2 points in February (December: 52.3 points) and thus remained above the growth threshold of 50 points. In particular, the mood among service providers made a significant leap upwards, but is still below expectations in the industry. The reason for this is still likely that the service industries are primarily affected by the measures to combat pandemic. One reason for the more optimistic mood is likely to be the global vaccination campaigns.

Read more about the economic situation in March 2021 here.