The coronavirus will be an “expensive fun” for all of us. For the state, the companies and the citizens. But how expensive will it be, how bad? The ifo Institute has just published calculations. The coronavirus will cost Germany’s economy hundreds of billions of Euros in lost production. Short-time work and unemployment will probably skyrocket and put a considerable strain on the national budget. The costs will probably exceed everything known from economic crises or natural disasters in Germany over the past decades. Depending on the scenario, the economy will shrink by 7.2 to 20.6 percentage points. This corresponds to costs of 255 to 729 billion Euros, according to the ifo Institute.
Coronavirus with gigantic effects on humans, politics and economy
Ifo calculates the effects of the coronavirus with several scenarios. They depend on how long the loss of production in the economy will last. In any case, the effects will be dramatic in all areas of life. Many people are probably not yet feeling the effects of the coronavirus, because employers will now pay normal wages one last time at the end of March. So our thesis! But let us now let the experts from the ifo Institute have their say, here in the wording:
“If the economy comes to a partial standstill for two months, the costs will be between 255 and 495 billion Euros, depending on the scenario. Economic output then shrinks by 7.2 to 11.2 percentage points per year,” says Fuest. The best scenario assumes that economic output falls to 59.6 percent for two months, recovers to 79.8 percent in the third month and finally reaches 100 percent in the fourth month. “With three months of partial closure, the costs already reach 354 to 729 billion Euros. That is 10.0 to 20.6 percentage points growth loss,” says Fuest.
According to ifo calculations, a single week’s extension of the partial closure will cause additional costs of 25 to 57 billion Euros and thus a decline in growth by 0.7 to 1.6 percentage points. An extension from one to two months increases the costs by up to 230 billion Euros or 6.5 percentage points growth.
“The crisis is also causing massive distortions in the job market. It will overshadow the conditions at the peak of the financial crisis,” says Fuest. In the scenarios considered by the ifo, up to 1.8 million jobs subject to social insurance contributions (or 1.4 million full-time jobs) could be cut. More than six million workers could be affected by short-time working.
Without taking into account the extensive planned guarantees and loans and possible european rescue packages, public budgets would be burdened by up to 200 billion Euros. “However, the lower tax revenues and additional expenditure, especially for transfers, are desirable and necessary for macroeconomic stabilization,” says Fuest.