Will the 130 billion euros promised by the Berlin government be enough to keep the German economy going? For the great German economist Heiner Flassbeck it is not enough at all, because the current economic crisis, clearly visible in the recent Kurzarbeit boom, is on a scale never seen before and largely underestimated by the Berlin government. Recent data on exports then show a historical collapse in foreign demand, which is essential to keep afloat a production system based on wage moderation. In the end it will be the workers who will pay the bill for this export-oriented production model as usual: first in redundancy, then in unemployment and finally in Hartz IV. A very interesting analysis by Heiner Flassbeck and Friedericke Spiecker from Makroskop.de
Since the beginning of the coronavirus crisis we have stressed (see the article of 21 March) that this shock caused by governments should not be compared to a recession or a normal economic slowdown. This shock is much bigger and more complex than anything else we have seen so far. Looking only at German industry, comparisons can be made with the great global recession of 2008/2009 (Figure 1). Although demand measured in terms of new orders fell at a much faster pace than then, the scale of the crisis is still similar. Overall, new orders (orange line) fell to a level slightly below the level of that period.
However, this only applies to the average of the sectors. For the automotive industry, for example, the current shock is much worse (Figure 2). Production in April fell by more than 70% compared to March this year, well below the lowest level in 2008/2009. The leading German industry of the last ten years is now in an existential crisis because neither at home nor abroad, due to consumer uncertainty, the purchase of a new car is currently the order of the day.
The fact that total German exports in April also fell by almost 25% compared to the first quarter is probably largely due to the fundamental weakness in demand for cars. But mechanics is also experiencing an historic slump; since the beginning of the year, demand has fallen by a third.
The labour market is the best indicator
But that's not all. Unlike the 2008/2009 financial crisis, this time many more branches of the economy as a whole were affected, because the closure largely affected sectors which, like hotels and restaurants, normally hardly ever felt the setbacks of the economy. The construction sector, which was not directly affected by the restrictive measures in Germany and which had performed well until March, also saw a significant drop in demand in April, which will also be reflected in a significant drop in construction in the coming months.
The true extent of the crisis can only be understood by looking at the labour market. The latest data from the Federal Employment Agency (BA) on the redundancy fund (Kurzarbeit) show the real extent of the dramatic economic crisis that began with the introduction of restrictive measures to combat the coronavirus pandemic. Since March, the number of companies that have applied for the layoff fund and whose applications have been examined by the Federal Statistical Office has reached an order of magnitude that has nothing in common with the financial crisis of 2008/2009 (see the blue line in Figure 3):
After the dramatic 625,000 requests in April, even with the 67,000 in May we are still well above double the maximum figure ever reached in 2009 (at that time just under 25,000). The last figure reported for the month of May will probably be corrected upwards again, as was the case with the March and April figures. The figure currently reported for April, for example, is 37,462 higher than the preliminary figure at the end of April. BA writes about this in the explanation of the relevant statistics:
"It is possible that, at a time of increasing volumes, applications for redundancy payments may have already been received en masse by the relevant agents but have not yet been recorded electronically in the BA's specialist procedures, and this recording may only take place after a certain period of time. At present, notifications relating to the BA's specific procedures are probably underrepresented to a not inconsiderable extent'.
BA resumed its data extrapolation, which had in the meantime been discontinued, with an extended procedure to determine from the number of requests flagged and checked the actual number of firms in layoffs. This extrapolation serves as a guide during a five-month period during which the settlement of the redundancy payment has not yet been completed and the data on part-time work (Kurzarbeit) are not yet finalised.
For March, the last month for which extrapolation is currently available, the calculated figure (just under 220,000 holdings) differs by one third from the number of officially reported and controlled holdings (just under 164,000). This suggests that extrapolating the April data for the number of companies claiming to work part-time, compared to the number of companies actually working part-time, will be even worse. After all, the number of companies claiming to work part-time from March to April has almost quadrupled. The sharp drop in the number of applications in May, however, indicates that the situation, at least for new applications, is stabilising.
What about the number of people working part-time? The traffic jam caused by the unusually high number of applications in March and April had led BA to estimate the number of people laid off in March and April at 10,1 million (see BA press release of 30 April). In the meantime the processing of applications has progressed and for both months the result was a shortfall of 10,6 million (2,6 million in March and 8,0 million in April). In May, the number of (new) short-time workers is provisionally estimated at 1.06 million (see Figure 4).
Of the approximately 2,6 million people indicated as part-time workers for March, BA calculated an actual number of part-time workers of approximately 2,0 million. That is 77%. Applying the same rate to registered persons would result in more than 6 million part-time workers (short-time workers) in April alone. Together with the number accumulated in March, which probably did not decrease in April, we arrive at an estimate of the total number of redundant workers (Kurzarbeit) of about 8 million.
The Ifo Institute estimates the number of people actually laid off in May at 7.3 million. If it is assumed that in June, thanks to the relaxation of anti-coronavirus measures, the situation will improve, taking an optimistic sample calculation, it can be assumed that the number of part-time workers at the end of June is half that of May, i.e. 3.65 million. This would result in an average of around 6.3 million part-time workers in the second quarter.
Even assuming that the number of new part-time workers in June is zero, this would still result in an average of over 5 million part-time workers in the second quarter. Even in this extremely positive, if not unrealistic estimate, we are still a long way from the 2.4 million assumed in the joint diagnosis of economic research institutes. Of course, the question of the number of hours worked less is still completely open, or will actually be worked.
It is obvious, however, that the scale of the economic collapse behind these figures far outweighs the financial crisis. The common forecast estimated a drop of almost 10 % compared to the first quarter. If this is consistent with the estimated number of part-time workers, a realistic view of the redundancy fund should assume that the fall is at least twice as large.
Against this background, gross domestic product will fall by much more than expected in 2020, a number which is still under discussion. In the meantime, the Council of Economic Wise Men has already moved to an estimate of - 6.5% of GDP, after having indicated - 2.8% in its March Special Report (most likely scenario), and even in the most pessimistic scenario had remained well above the figure considered probable today.
It is extremely important to have a reasonably realistic picture of the current and projected situation in the immediate future in order to advise policy makers in a reasonable way on the nature and scope of the support measures. So far, professional predictors have not yet been able to do so. And this is one of the reasons why politics has always lagged behind, instead of taking a step forward.
The political consequences of underestimation
In the meantime, the federal government has presented a "stimulus package for the economy", the size of which (€130 billion) is generally regarded as significant and sufficient. There is a risk, however, that the usual model of politicians forced to chase events will be repeated, after underestimating the scale of the economic collapse at first. The government coalition has adopted a large number of economic measures, and it is by no means clear how and when they will enter into force. The only far-reaching measure seems to be a three-point six-month reduction in VAT.
But even this measure is still not very impressive from a quantitative point of view, at least when one considers how large the reduction in demand by households is. If the average household savings rate increases by one percentage point from 11% to 12% (in Q1 2020 the rate rose to 12.4% compared to 11.1% in Q4 2019), there will be about €10 billion less per half year in terms of consumption (total household disposable income in 2019 was €2.4 trillion, i.e. €1.2 trillion per half year, an increase in savings of one percentage point equals €12 billion more).
The loss of income due to the redundancy fund and unemployment will amount to around EUR 5 billion in the second quarter of 2020 (taking into account the redundancy fund allowance). The average net salary per employee in 2019 was EUR 24,951. Assuming that people affected by short-time working measures and unemployment tend to earn less (only €20,000 net salary per year) and that they work only 50% of the time (loss of working hours due to the redundancy fund), these households will have lost about €2,500 net, without calculating the redundancy benefit. If about 70% of the losses are offset by the Kurzarbeit allowance (60% for employees without children, 67% for employees with children; plus partial increases through collective agreements), there remains a per capita loss of income of about €750 net in the three months of the 2nd quarter.
With about 6.5 million people affected (number of redundancies in Q2 + 0.5 million more unemployed), this should translate into a loss of income in Q2 of almost €5 billion. If, with some optimism, we assume that the income losses due to part-time work and unemployment in the third and fourth quarters will be half of those in the second quarter (partly because the closure measures have been lifted, partly because the short-time work allowance has been increased to 80-87%), there will be a total of a further EUR 5 billion in income losses. This translates into about EUR 10 billion less disposable income and another EUR 10 billion due to further likely savings.
The government estimates that the relief for households resulting from the VAT reduction will be around EUR 20 billion if the VAT cut is passed on in full to consumers. This means that the relief due to the VAT reduction would, at best (i.e. in a very optimistic picture), offset the estimated fall in private consumption. It is also foreseeable that the positive effect of this measure in the last six months of this year, on the other hand, could lead to a new uncertainty in the first half of 2021 due to a fall in consumption (after the towing effects for 2020, and due to a return of VAT to the old rate as from 2021).
The fall in demand from investment is also clearly having a negative impact on the development of the economy. This is unlikely to be offset by the measures announced, as capacity utilisation is catastrophically low. Moreover, as already noted at the outset, demand from abroad, which is very important for Germany, is falling without any possibility of an immediate recovery. The 80 % drop in the foreign trade balance in April, compared with the same month last year, cannot be significantly mitigated even by a drop in tourism abroad by the Germans: the current account balance in April fell by almost two thirds compared with the previous year.
The huge surplus demand from abroad, which the Germans have been "needing" for many years now to dispose of their production - in 2019 it exceeded 7 % of GDP - and to keep their economic model based on wage dumping afloat, will be extremely negative throughout the coronavirus crisis. The structural distortion towards exports of our prod
Nessun commento:
Posta un commento