The US economy collapses

The consequences of Corona on the economy : Why Germany is considered a role model for the USA

It sounds like a quiz question: "Which country will triumph in the world after Corona?". This was recently asked by Ruchir Sharma, investor and investment strategist at Morgan Stanley, in a guest article for the New York Times. His answer surprised. Because it's not the US, it's not China either. But Germany. Despite the historical economic slump, the Federal Republic of Germany is becoming an international role model in the pandemic. The crisis is hitting companies hard in this country too.

Economic output in Germany fell by 10.1 percent in the second quarter. Andreas Scheuerle, economist at Dekabank, speaks of a “recession of the century”. “What neither stock market crashes nor oil price shocks have managed to date was achieved by a tiny 160 nanometer named Corona,” he says. When looking at the latest figures, the economic slump is having a similar impact on Germany and the USA. In the United States, too, economic output slumped by almost ten percent in the second quarter. Projected over the year, the minus was even 32.9 percent, as the administration of US President Donald Trump announced on Thursday.

But while the data for the second quarter for Germany and the USA appear similarly bleak, the outlook for the Federal Republic is much more optimistic. "There are encouraging signs that the low point is behind us," says Jörg Zeuner, from the fund provider Union Investment, about developments in this country. Industrial production, retail and export have recovered significantly. For the USA, however, the experts are rather pessimistic. "It will be a long time before the US economy emerges from the deep valley of tears," says Bastian Hepperle from Bankhaus Lampe. "Persistently high numbers of infections and mass unemployment are causing considerable uncertainty."

"The US is no longer superior to Europe"

The United States may take longer to recover from this crisis than other countries. The investor and former Pimco boss Mohamed El Erian is also convinced of this: "The US is no longer superior to Europe in terms of economic outlook, that's an enormous change," he recently wrote on Twitter.

Analyst Sharma believes that Europe simply has better recipes for the crisis - especially Germany. Why is that? In the “Swabian housewife”, Sharma suspects, referring to Chancellor Angela Merkel.

She reacted much faster than Trump. As a result, the shutdown in this country could have been shorter, writes the investor. Add to this the good housekeeping in recent years. The comparatively low national debt would have allowed Merkel's cabinet to quickly agree on financial aid, support loans and tax cuts. Measured in terms of economic output, Germany had its rescue programs cost four times more than the USA.

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The Americans are also jealous of the German short-time work. By allowing companies to reduce the working hours of their employees, by far not as many people have lost their jobs in this country as in the USA. The Americans are now instead feeling the flexibility of their labor market: US corporations can lay off employees comparatively easily. In the past, this has mostly helped the American economy: It was able to recover from crises more quickly than other countries. But this time, according to experts like Sharma, things could turn out differently.

The recovery in the US could slow down again

Because the USA is the country with the most corona deaths and infections worldwide. To date, 4.5 million Americans have become infected and the numbers continue to rise. In Germany, too, there are more new corona cases again, but the increase is nowhere near as severe. This is also reflected in the economic data. For example, consumer confidence in the USA is particularly bad in states that continue to struggle with Corona, such as California, Florida and Michigan. Federal Reserve Chairman Jerome Powell warns that the US economic recovery will slow down again. For example, companies would be more reluctant to hire new staff.

For the German Institute for Economic Research (DIW), the USA is even a negative example when it comes to dealing with Corona. It shows what could have happened to Germany if politicians had not reacted in time. "A look at the USA gives an idea of ​​how devastating the virus could have been without extensive restrictions - and then, at the risk of human suffering, would later have led to an economic slump," says DIW researcher Simon Junker.

It is by no means said that in the end Germany will actually come through the crisis so much better. Economists say that Germany could not reach pre-crisis levels again until 2022 at the earliest - provided that there is no further lockdown.

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