International Finance

Since the Corona epidemic reached Europe, the whole continent suffered from the consequence. Some countries reacted immediately and prepared for the worst while others waited too long to start being active. For my research project I chose Germany and since I am currently living in Germany, I know from first-hand what the government is doing and what some economic institutions suggests the government to do. Since nobody really knows how long the Virus will still be around and how long it will take to find a working vaccination, experts developed different scenarios based on the time the economy is standing still. In one of the scenarios, companies will be able to work effectively again in a few weeks in which case the GPD is protectively decreasing by 4.8% in 2020 and then increases by 5.8% in 2021 again (Wirstchaft, 2020). Since it is not clear when the economy will completely work again, this is still a very good so it has to be clear that it can also be way worse. 

As of today, the Germany government spends more money on governmental allowances and credits than any other country. Related to the economic performance of a country, Germany spends the most money in the world for crisis management. The government spends more than 1/3 of the country’s GDP on aid packages for the Germany economy, which is more than 1 billion dollars. The biggest part is not spent on additional deps, but on credits for companies, warranties and capital injections to strengthen the economy. Other countries that spend more than 1/10th of their GDP on aid packages are Italy, Japan, Great Britain and France. Globally the aid packages are as high as eight billion dollars. Since all countries around the world increase their national depts, the IMF (International Monetary Fond) projects an increase in the international dept ratio from 82% to 96% (Seibel, 2020). 

The German economy is strongly relying on international trade. As I mentioned in the presentation, Germany is the third biggest country when it comes to exports. Since almost all the boarder of the countries are closed right now, international trade is almost impossible. Companies in Germany lose orders, the supply chain collapses, and some businesses are completely closed. The government is helping in this case by guaranteeing exports in other European countries or OECD countries for at least 24 months. Volkswagen, as one of the biggest cars manufactures in Germany is planning on opening its manufacture plant before the beginning of May, which a lot of experts see as unrealistic. 

One of the industries where we can already realize the impact of the pandemic is the oil and gas industry. Since the pandemic started, the gas prices in Germany have been as low as after the world recession in 2008. The 23 biggest oil producing countries in the world met last week to talk about producing less oil and gas since the demand went down so dramatically. One of the last countries to agree to this plan was Mexico, who wanted to keep producing the same amount. As of right now, they agreed to produce 9.7 barrels less per day in May and June, which is equitable to 10% of the global oil production. Experts project that the cutbacks will last until April 2022. The deal saved a lot of employments worldwide which is why most countries call the deal a big success. 

To save small retail stores and thereby save a lot of jobs, the German government opens stores under 800 square meters on April 20th, but all the stores have to have regulations on how many people they allow in the stores at once. As of right now, only 1% of the German population have been infected by the disease and the government is aware that as long as we have not found a vaccination we have to learn how to live with the Virus. By opening smaller stores, as well as part of the educational system, the reproduction rate will increase again, but only by a small amount. If the government is opening the industrial sector too soon the reproduction rate will increase a lot faster and the risk of the healthcare system to collapse will increase as well. The German government is aware that it is important to help the economy, but the best they can do right now is helping the economy with aid packages and not by opening it industrial sector first. 

In conclusion, Germany is handling the pandemic fairly well, but the impact it has on the economy is not yet determined and we can just hope that we will not experience the worst case scenario in which the unemployment rate will rise and the economy will suffer for a long time. 

 

References 

Seibel, C. (2020, 15 04). Wirtschaft. Die Welt .

Wirstchaft. (2020, 04 08). Retrieved from WELT: https://www.welt.de/wirtschaft/article207113601/Corona-Pandemie-Schwerwiegende-Rezession-in-Deutschland-laut-Oekonomen.html