Germany’s healthcare system was in a better position than most to cope with a pandemic. It has more hospital beds per capita than any other European country and is among the top in the world for both physicians and nurses per capita.[1] Not too long ago, there was debate over whether Germany had too many hospital beds, not too few.
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Despite the relative strength of its healthcare system, the German government quickly locked down the country as new cases rose exponentially. After spiking at the beginning of April at almost 12,000 new cases a day, the situation improved quickly with new cases falling to just over 500 a day in the space of a month. According to the COVID-19 Government Stringency Index created by the Blavatnik School of Government at Oxford University, the turning point for the spread of the disease occurred shortly after lockdowns were imposed. By June, some were viewing Germany as an “emerging COVID-19 success story”, especially when compared to other major European countries.[2] However, cases have been rising in recent weeks and are expected to rise further with the reopening of schools, raising the prospect of a second wave.
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Although relaxed recently, several lockdown measures are still in place. Considering this, the economy has performed well, with retail sales reporting solid growth for the last two months of data. Putting this into the context of other economies, Germany performs even better. Although the government has reportedly provided less economic support, the impact on industrial production has been similar to that in its European counterparts. Retail sales in Germany have, however, reported growth in the last two months of data, May and June, from the same period last year.
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The labour market in Germany has also followed a similar path to other developing nations. As lockdown took hold, unemployment jumped 1.4%, roughly 700,000 people, in just three months. The Kurzarbeit scheme has helped lower this figure, allowing employers to reduce employees’ working hours whilst letting the government pay 60% of workers salary for hours not worked.[3] While not picked up in the unemployment figures, this loss of working hours has been clear when looking at the falls in productivity. In April, at the height of lockdown, output per worker had fallen by 24% from one year ago.
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As the effects of COVID-19 begin to wear off, the German economy is returning to pre-pandemic normals. With policy support extended into 2021 and lockdown measures easing, consumption is expected to remain strong. Germany is a prime example of our expectation of a strong recovery in economic activity in the third quarter of this year. However, the outlook beyond that point remains uncertain. Fathom’s expectation is still for a V-shaped recovery, however, there remains a substantial chance that this could be derailed by a second wave of the virus.
[1] World Bank Open Data https://data.worldbank.org/
[2] https://ourworldindata.org/covid-exemplar-germany
[3] https://www.imf.org/en/News/Articles/2020/06/11/na061120-kurzarbeit-germanys-short-time-work-benefit
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