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German economy is suffering more than expected from the Covid crisis

KIEL. Leading economic institutes have forecast a stronger economic slump than previously assumed due to the Coronavirus. According to the Kiel Institute for the World Economy (IfW), they expected a decline in gross domestic product (GDP) of 5.4 instead of 4.2 percent for 2020, contrary to the estimates made in spring. The facilities include the Institute for Economic Research and the Leibniz Institute for Economic Research in Halle.

The institutes estimated GDP growth for 2021 at 4.7 percent. So far, they had assumed 5.8 percent. The reason for the correction is that the institutes now assess the economic recovery process to be weaker than before. In addition, companies' reluctance to invest is slowing the upswing.

Tourism and the hospitality industry are holding back recovery
In particular, sectors that are heavily dependent on social contacts slowed the recovery. These are, for example, restaurants, the tourism sector, the event industry or air transport.

"This part of the German economy will suffer from the corona pandemic for a long time and will only participate in the recovery process when measures to protect against infection are largely omitted, which we do not expect until the next half of the summer," said the head of the IfW forecast center, Stefan Kooths.

Unemployment rate could rise to 5.9 percent by 2021
The corona crisis is also noticeable on the labor market. Despite massive short-time work, an estimated 820,000 jobs had been lost by the middle of the year. Since then, the number of people in employment has increased slightly again. The unemployment rate will rise to 5.9 percent this year and next, the institutes forecast. In 2022 it will then drop to 5.5 percent.

The pre-crisis level of economic output is not expected to be reached until the end of 2021.

With the break-in catching up, the consequences of the corona crisis are by no means over. At the moment, however, it is difficult to predict "what long-term damage the crisis will cause and how the economic and political reactions will work," emphasized Kooths.

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