Clement Fuest, President of the world-renowned Munich based think tank the Ifo Institute for Economic Research, offered his gloomy prognosis the day after Mrs Merkel introduced tough new lockdown restrictions, including a ban on meetings of more than two people except for families. Out of more than 330,000 COVID-19 cases worldwide, Germany currently has 24,774 according to the latest World Health Organization figures published today, a rise of 3,311 on the day before, with 94 deaths. In a report published on Monday, the Ifo said the pandemic would inflict hundreds of billions of euros’ worth of damage in the form of lost productivity, resulting in skyrocketing unemployment, and imposing massive strains on the state budget.
The costs are expected to exceed everything known in Germany from economic crises or natural disasters in recent decades
He said: “The costs are expected to exceed everything known in Germany from economic crises or natural disasters in recent decades.”
Mr Fuest added: “It is therefore worthwhile to use almost every conceivable amount for health policy measures.
“The goal must be to shorten the partial closure of the economy without compromising the fight against the epidemic.
“Strategies are needed that can link production resumption with further containment of the epidemic.”
He explained: “If the economy comes to a standstill for two months, costs can range from €255 to €495billion depending on the scenario.
“Economic output then shrinks by 7.2 to 11.2 percentage points in the year.”
The best case scenario assumed economic output would decline to 59.6 percent for two months, recover to 79.8 percent in the third month and finally reach 100 percent in the fourth month, the report argues.
Mr Fuest said: “With three months of partial closure, the costs already reach €354 to €729billion, which is a 10.0 to 20.6 percentage point loss in growth.”
Ifo calculations suggest a single week’s extension of the lockdown will cause additional costs of between €25 and €57 billion and therefore a decrease in growth of 0.7 to 1.6 percentage points.
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Therefore an extension from one to two months pushes costs up by up to to 230 billion euros, or 6.5 percentage points of growth.
Mr Fuest added: “The crisis also leads to massive upheavals on the job market.
“These dwarf the situation at the height of the financial crisis.”
In the various scenarios considered by the Ifo, up to 1.4 million full-time jobs could be lost.
Without taking into account extensive planned guarantees and potential Europe-wide rescue packages, public budgets will be burdened by an additional 200 billion euros.
Mr Fuest said: “For overall economic stabilisation, however, the reduced income from taxes and additional expenditure, especially for transfers, are desirable and necessary.”
Speaking last week Mrs Merkel, who it was today confirmed had tested negative for COVID-19, said during a live broadcast to the nation: “The situation is serious. Take it seriously.
“Since German unification, no, since the Second World War, there has been no challenge to our nation that has demanded such a degree of common and united action.
“I truly believe that we will succeed in the task before us, so long as all the citizens of this country understand that it is also THEIR task.
“I also want to tell you why we also need YOUR contribution and what each and every person can do to help.”
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