The coronavirus outbreak in Germany has brought an abrupt end to the positive economic start to the year. The country’s economy must address unexpected challenges.
Economic Forecast Germany 2020-2021
Due to disrupted supply chains and weak global trade, the impact of COVID-19 and its restrictions will affect domestic and foreign investments. According to the European Commission, Germany’s GDP is expected to fall by 6.5 percent in 2020. Other large European countries such as France, the UK, Italy, and Spain will see an even bigger decline in 2020.
In 2021, large catch-up and carry-over effects should buoy the German economy, with a projected GDP increase of around 6 percent allowing Germany to reach its pre-crisis level by the end of the year.
Countering the Crisis - Record Package of Financial Support Measures
Germany’s government has moved swiftly to counteract the worst effects of the crisis, introducing a far-reaching package of financial measures to safeguard health, jobs and the economy. The record aid package includes a supplementary government budget of EUR 156 billion to absorb the immediate consequences of the crisis. The complete program of help measures – including guarantees and subsidized KfW bank loans – planned represents EUR 1.2 trillion in total. By moving quickly and decisively to mitigate the worst outcomes of the crisis, Germany’s government is creating the conditions to ensure that businesses – of all sizes – emerge from the crisis intact.
Germany was one of the safest investment locations worldwide before the global coronavirus pandemic. The country’s strong and stable economy now puts it on a strong footing to deal with the current crisis. The record financial aid package announced – with further measures foreseen as and when required – is a sign of the German government’s commitment to ensuring that the country maintains its proud position.
Global FDI Perspectives
A global recession now seems certain, with economic recovery only possible when the virus can be effectively contained. According to the OECD, a sharp slowdown in world growth is expected in the first half of the year as supply chains and commodities are affected, tourism falls away and business confidence falters.
UNCTAD reports that the outbreak and spread of Covid-19 will negatively affect global foreign direct investment (FDI) flows in the period 2020-2021. Downward pressure on FDI will be in the range of -30 to -40 percent according to new forecasts. Developed countries in particular will feel the effect of this downturn as a result of their dependence on global supply chains.
Sectors expected to experience the greatest decline in FDI levels include aviation, tourism, entertainment, retail trade, and luxury goods. The automotive, consumer goods and IT sectors should experience minimal decline, with biotechnology, e-commerce, digital technologies, and healthcare potentially recording FDI increases according to some forecasts.