German Economy: Optimistic despite Decline as 2020 Ends: DIW Economic Outlook

Abstract

The coronavirus pandemic is once again slowing down the German economy: Following a strong and unexpected economic recovery over summer 2020, which compensated for large parts of the losses from the spring, the second wave has resulted in renewed restrictions affecting both social and economic life. Therefore, the German economy is likely to shrink again in the final quarter of 2020. If the second wave can be brought under control over the course of winter 2020/2021, as this forecast assumes, there is still hope of a speedy recovery. In this case, the German economy would reach its pre-crisis level in the later part of 2021. However, there is a significant risk that things will progress differently: If the second wave lasts longer than assumed, the recovery in spring 2021 will probably not occur. As a result, many companies and even banks would face considerable difficulties, which could lead to an even deeper economic crisis. However, there is hope the pandemic will soon end due to breakthroughs in developing vaccines and the impending rollouts.