Merkel warned ‘depression’ to hit German economy if coronavirus outbreak spikes again

Angela Merkel is expected to take Germany out of the coronavirus pandemic with a struggling economy as the Institute for Economic Research (IFO) forecast there could be a 6 percent shrinkage in financial resources. Chancellor Merkel last week relaxed lockdown measures for most of the country but may need to reconsider further reopenings after the reproduction rate of the coronavirus edged up, sparking further concerns for the economy. Michael Bauer, professor of Financial Economics at the University of Hamburg, suggested Berlin may have to grapple with a “depression-like” scenario should current economic forecasts be too optimistic.

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Speaking to Euronews, Prof Bauer said: “Most forecasters right now anticipate a pretty solid pick up in the second half of this year, and a strong recovery next year.

“People talk of a V-shape recovery, that is the baseline expectation that most economic forecasters have right now. That’s certainly what I’m hoping for as well.

“There’s a real possibility we’ll something more like an L-shape recovery where you have not nearly as much economic pick up next year as we’re hoping. And there are other downside risks.”

Prof Bauer continued: “We could, if things really go poorly, we could have something more akin to a depression-like situation, with a prolonger contraction of the economic activity.

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“Most people expect a good pick up in the second half of this year and then strong growth next year but there are serious downside risks to this forecast.”

The warning came after the IFO updated export market expectations from -19 to -50 in April, the lowest index ever measured.

The IFO justified its decision warning demand has “collapsed” because of the COVID-19 pandemic.

The Institute said: “The coronavirus crisis is striking the German economy with full fury.

“Demand for industrial products has collapsed.

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“Companies have never been so pessimistic about the coming months.”

The Institute for Employment Research (IAB) said unemployment across Germany is set to rise by 520,000 and is likely to exceed three million in 2020 because of the lockdown.

Germany is still recovering from a catastrophic fall in the country’s stock market, the Dax Performance Index, in February.

In addition to its economic troubles, Germany has also had to contend with growing criticism of the Government over the procurement of personal protective equipment (PPE).

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Doctors and nurses have been protesting against Chancellor Merkel by sharing pictures of themselves only wearing PPE to denounce how they feel naked and vulnerable without appropriate protective gear.

And Berlin has also been embroiled in an internal battle within the EU over Angela Merkel’s initial position on how the common response the bloc would have to respond to the pandemic.

EU27 finance ministers reached a tentative agreement last week in the second round of talks on the coronavirus strategy, with member states agreeing to a €1.5 trillion rescue package to help countries that have been hit worst during the pandemic. 

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