Second lockdown could send Germany into economic relapse

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·2 min read
BERLIN, GERMANY - OCTOBER 24: Social distancing bubble tents are set up at the Cafe Tirree in Moabit neighborhood of Berlin, Germany on October 24, 2020. Transparent bubble tents are set up by owner of Cafe Tirree, Stefan Tirree for customers during autumn and winter seasons. Restaurant and cafe owners develop new methods to protect their customers from the novel coronavirus (COVID-19) pandemic. (Photo by Abdulhamid Hosbas/Anadolu Agency via Getty Images)
Social distancing bubble tents are set up at the Cafe Tirree in Berlin, Germany on 24 October. Photo: Abdulhamid Hosbas/Anadolu Agency via Getty Images

German businesses are holding their breath awaiting the outcome of a meeting between chancellor Angela Merkel and the leaders of Germany’s 16 states on Wednesday afternoon.

With new daily coronavirus cases nearing 15,000 on Wednesday, and cases regularly surpassing 11,000 a day in the past week, the chancellor is pushing for what would amount to a second nationwide lockdown.

READ MORE: Germany braces for 'lockdown light' as coronavirus cases keep climbing

Merkel is aiming to get consensus from the states to shut restaurants, bars, gyms, theatres, cinemas in November to break the second wave of the virus. Business owners have warned that they may not survive another lockdown — and economists echo their fears, saying it would be a disaster for the German economy.

“It would be criminally naive to believe that the second lockdown is just a repetition of the first,” Michael Hüther, the director of the German Economic Institute wrote in business newspaper the Handelsblatt.

Commerzbank chief economist Jörg Krämer told Reuters that a second lockdown would snuff out GDP growth in the final quarter of the year, creating a “considerable risk” of a second recession.

“Many companies are still very weak because of the initial lockdown,” Krämer said. “You can't turn the economy on and off like a lamp without causing massive damage.”

READ MORE: Coronavirus: Germany faces 1 million job losses in SME sector

Germany’s federal statistics bureau will release its preliminary third-quarter GDP data on 30 October. The economy contracted by 9.7% in the second quarter, and the government revised its 2020 forecast to 5.8% decline, from a previous forecast of a 6.3% decline.

Clemens Fuest, president of the Ifo economic research institute said: “There can be no economic recovery if the pandemic is not under control. There is no conflict between health and economic policy issues.”

READ MORE: German companies gloomy as COVID-19 infections surge

The Ifo’s business sentiment index showed that company bosses were feeling a lot more pessimistic in October about the months ahead than they had been in August and September.

“The greatest damage to the German economy comes from a strong, long-lasting second wave of infections, not from targeted restrictions on daily life,” said Marcel Fratzscher, president of the German Institute for Economic Research. “The less the situation is under control the more confidence will suffer.”

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