Coronas impact on the economy: Why Germany is a role model for the United States – economy

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It sounds like a quiz question: “Which country will triumph in the world after Corona?” That recently asked Ruchir Sharma, investor and investment strategist at Morgan Stanley, in a guest post for the New York Times. His answer is surprising. Because it is not the USA, it is not China. But Germany. Despite a historic economic downturn, the Federal Republic is becoming an international model in the pandemic. The crisis is also hitting companies in this country hard.

Economic output in Germany slumped 10.1 percent in the second quarter. Andreas Scheuerle, economist at Dekabank, speaks of a “recession of the century”. “A 160-nanometer tiny creature named Corona has done what neither stock market crashes nor oil price shocks have managed,” he says. When looking at the latest figures, the economic downturn affects Germany and the USA equally strongly. In the United States, economic output also fell by almost ten percent in the second quarter. Extrapolated to the year, the minus was even 32.9 percent, as the government of US President Donald Trump announced on Thursday.

But while the data for the second quarter look similarly bleak for Germany and the USA, the outlook for the Federal Republic is much more optimistic. “There are encouraging signs that the low point is behind us,” says Jorg Zeuner, from fund provider Union Investment, about developments in this country. Industrial production, retail and export would have recovered significantly. For the USA, on the other hand, the experts are rather pessimistic. “It will be a long time before the US economy comes out of the deep valley of tears,” says Bastian Hepperle from Bankhaus Lampe. “Persistently high infection rates and mass unemployment create considerable uncertainty.”

“The US is no longer superior to Europe”

The United States could take longer to recover from this crisis than other countries. Investor and former Pimco boss Mohamed El Erian is also convinced of this. “The US is no longer superior to Europe in terms of the economic outlook, this is a huge change,” he recently wrote on Twitter.

Analyst Sharma believes that Europe simply has better recipes against the crisis – especially Germany. Why is that? On the “Swabian housewife”, Sharma suspects, referring to Chancellor Angela Merkel.

Chancellor Angela Merkel (CDU) is suddenly considered a role model in the United States.Photo: dpa

She reacted much faster than Trump. As a result, the shutdown in this country could have been shorter, writes the investor. In addition, there has been good budget management in recent years. The comparatively low public debt would have allowed Merkel’s cabinet to quickly agree on financial aid, support credits and tax cuts. In terms of economic performance, Germany has had its rescue programs cost four times more than the United States.

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The Americans are also jealous of German short-time work. By allowing companies to reduce the working hours of their employees, the state has by far not as many people lost their jobs as in the United States. Instead, the Americans are feeling the flexibility of their labor market: US corporations can lay off employees relatively easily. In the past, this has mostly helped the American economy: it was able to recover from crises faster than other countries. But this time, my experts like Sharma, the calculation could turn out differently.

The recovery in the US could slow down again

Because the United States is the country with the most corona deaths and infected worldwide. To date, 4.5 million Americans have been infected and the numbers continue to rise. There are more new corona cases in Germany too, but the increase is far from being so violent. This is also reflected in the economic data. For example, consumer confidence in the United States is particularly poor in those states that continue to struggle with corona, such as California, Florida, and Michigan. Central bank chief Jerome Powell warns that the recovery in the US economy will slow again. For example, companies would be more hesitant about hiring again.

For the German Institute for Economic Research (DIW), the USA is even a negative example when it comes to dealing with corona. It shows what could have happened to Germany if politics had not reacted in time. “A look at the United States gives an idea of ​​how devastating the virus could have been without extensive restrictions – and then, at the expense of human suffering, would have later led to an economic downturn,” says DIW researcher Simon Junker.

It is by no means said that Germany will actually get through the crisis so much better in the end. Economists could return to the pre-crisis level in 2022 at the earliest – provided that there is no further lockdown.

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