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Huge drop in private consumption/ The ongoing crisis costs Germany 735 billion euros, economists call for measures
2025-03-10 09:29:47 / BOTA
The coronavirus pandemic, the war in Ukraine, geopolitical turmoil – according to a study, the crises of the past five years have cost Germany almost 750 billion euros. Without them, gross domestic product would have been around 735 billion euros higher, according to research by the Institute for German Economics in Cologne (IW), news agencies report.
"After recovering from the pandemic shock, the German economy has not reached its 2019 level for three consecutive years," the report said. At the same time, economic losses are the largest in the last 25 years in Germany.
During the structural crisis from 2001 to 2004, losses amounted to 3.4 percent of Gross Domestic Product (GDP), while the economic costs of the 2008/09 financial crisis amounted to 4.1 percent. Since the outbreak of the pandemic, losses have reached a record 4.3 percent of GDP.
Neglect of the business environment?
“Germany is in its worst economic crisis since reunification,” said Michael Grömling, director of the IW analysis team. “Corona and Ukraine have almost completely halted companies’ investment activity. This is already reducing our production potential and will continue to hinder it in the coming years.”
But politics also bears responsibility. For years, it has neglected the business environment, i.e. the conditions for doing business within the country. “That’s why crises hit us so hard,” said Grömling. The task of the next government will be to fill this gap – for example, with financial incentives, cheaper energy and less bureaucracy.
Huge drop in private consumption
The total losses in private consumption over the past five years, according to the study, amount to around 470 billion euros. This corresponds to an amount of 5,600 euros per capita. However, in the long term, the most significant impact will be the reduction in the level of corporate investment.
“While in the main period of the pandemic, consumption losses were significantly larger than investment losses, in recent years the negative impact of the lack of investment has been increasingly felt,” IW points out. In gross fixed capital formation, losses in the last 20 quarters, since the outbreak of the pandemic, are estimated at 265 billion euros.
Economic support for new investment plans
Meanwhile, the CDU/CSU Union and the Social Democratic Party (SPD) have made significant progress in their negotiations and have agreed on a debt-financed investment package of historic proportions for defense and infrastructure.
On the one hand, the constitutional borrowing limit will be relaxed for defense spending, negotiators announced after the third round of talks on Tuesday (March 4) evening in Berlin. A special fund of 500 billion euros will also be created for rebuilding infrastructure.
Economists are positive about the agreement. “This is a historic moment, a strong and good package,” said Jens Südekum, professor of international economics at Heinrich Heine University in Düsseldorf.
However, the key is to ensure that the money is invested in appropriate projects. “The special infrastructure fund should be accompanied by an acceleration of approval procedures and the granting of building permits,” Südekum stressed.
Overall, it's about sending a convincing message to the private sector that the state is now seriously embarking on an investment offensive. "Overall, Europe is in the midst of a historic turning point," comments Carsten Brzeski, chief economist at ING.
"The developments of recent days have perhaps pushed the next German government to take a historic step, announcing a tax package that could finally mark the beginning of the best years for the economy," Brzeski concludes./ DW
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