German economy may shrink by over 9% this year due to coronavirus crisis

Europe’s biggest economy, Germany, may decline by 9.3 percent in 2020, according to the worst-case scenario outlined by one of the country’s largest economic think tanks, the Ifo Institute.

The Munich-based institute presented three possible scenarios in its latest economic forecast update on Thursday. Based on a survey conducted among companies in May, it could take them nine months on average to get back to normal after the severe second-quarter lockdowns. In this case, the country’s economy could shrink by 6.6 percent this year and then recover from this level by 10.2 percent next year.

However, the worst-case recovery would take significantly longer, up to 16 months, with economic output shrinking by 9.3 percent this year. According to this scenario, next year’s growth will just slightly compensate for the losses, and the recovery “would then be drawn out well into 2022.”

The quickest possible return to normal would be after five months on average, resulting in a 3.9 percent decline in economic output.

Even the Ifo Institute’s average forecast shows that the coronavirus crisis could plunge Germany into the deepest recession since the end of WW2. The think tank’s projections are not much gloomier than the Economy Ministry’s outlook, which predicts the German economy will shrink by 6.3 percent in 2020.

The coronavirus pandemic has already halted the country’s decade-long economic growth. In the first three months of the year, Germany’s economy has shrunk by 2.2 percent compared to the last quarter of 2019. This was the second quarterly contraction, meaning that the German economy has technically fallen into recession.

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