Cover of EconPol Policy Brief 21

The Economic Costs of the Coronavirus Shutdown for Germany: A Scenario Calculation

Florian Dorn, Clemens Fuest, Marcell Göttert, Carla Krolage, Stefan Lautenbacher, Sebastian Link, Andreas Peichl, Magnus Reif, Stefan Sauer, Marc Stöckli, Klaus Wohlrabe, Timo Wollmershäuser

This EconPol policy brief, using figures from the ifo Institute, calculates potential costs of coronavirus to the German economy of up to 729 billion, with up to 1.8 million jobs cut and six million workers affected by lower hours - however it stresses that the aim of any action must be to shorten the partial shutdown of the economy without compromising the fight against the epidemic, with strategies that combine a resumption of production with further containment of the epidemic.

Abstract

This study uses scenario calculations to estimate the economic costs of the partial closure of the economy due to the coronavirus epidemic. With a shutdown duration of two months, the costs reach between EUR 255 billion and EUR 495 billion, depending on the scenario, and reduce the annual growth rate of GDP by between 7.2 and 11.2 percentage points; with a shutdown duration of three months they reach EUR 354 to 729 billion (10.0 to 20.6 percentage points growth loss). On the labor market, up to 1.8 million jobs subject to social security contributions (1.35 million full-time equivalents) could be cut and more than six million employees could be affected by short-time work. Public budgets will be burdened by up to EUR 200 billion, not including the extensive planned guarantees and loans. For political decisions it is particularly relevant to know how expensive it is to extend the shutdown. We see that a single week of extension will cause additional costs of EUR 25 to 57 billion and thus a decline in GDP growth of 0.7 to 1.6 percentage points. Given these costs, it is particularly urgent to develop strategies to make the resumption of economic activity compatible with containing the coronavirus epidemic.

Citation

Florian Dorn, Clemens Fuest, Marcell Göttert, Carla Krolage, Stefan Lautenbacher, Sebastian Link, Andreas Peichl, Magnus Reif, Stefan Sauer, Marc Stöckli, Klaus Wohlrabe, Timo Wollmershäuser: The Economic Costs of the Coronavirus Shutdown for Germany: A Scenario Calculation, EconPol Policy Brief 21, March 2020