The corona crisis has become a systemic crisis. However, it is not comparable to the financial market crisis of 2008/09, which is why the course of events and the necessary rescue measures are also different.
The current crisis has so far been a supply crisis, as production was the first to be affected. In addition, the supply chains have been significantly stressed. Due to social restrictions and widespread quarantine measures, this is now slowly turning into a demand-driven crisis. The banking sector has not yet been affected. If there were to be a broad wave of insolvencies, the burdens would of course also be clearly felt by the banks and could in turn trigger a banking crisis. In this case, the banking sector in crisis would act as an accelerant and deepen and prolong the recession.
The measures now taken by the ECB and the German government are aimed at preventing precisely this. The new regulations for short-time working allowances should cushion the burden on private households to a large extent. The comprehensive credit commitment should prevent a wave of insolvencies caused by corona. In addition, the capitalisation of the banking system has improved significantly in recent years, making it more crisis-proof. Of course, the individual banks are crisis-resistant to varying degrees. Institutions that were already experiencing difficulties before could now be in full swing, as an increase in non-performing loans is very likely in the medium term despite all efforts.
The growth forecasts will be revised considerably downwards in the coming weeks. However, from the current perspective it is not yet possible to say how deep the recession will be. This ultimately depends on the measures finally taken to combat the virus. But a deep recession in H1 is almost inevitable. The course of the economy in H2 2020 currently depends on whether the restrictions continue or are eased or lifted towards the summer. Much will depend on the development of effective medicines. As soon as these are available, the limiting factor – the number of intensive care beds – will no longer be so relevant, as a large proportion of high-risk patients could then be treated and intensive care could be avoided. In this case, social and economic life in H2 should return to normal and the economy should recover noticeably. Government investment programmes should provide support here.
The stock markets should still have a rollercoaster ride ahead of them in the coming weeks, torn between bad economic news and burgeoning hope. However, one should not bet too early on a sustained price recovery; the lows on the stock markets have probably not yet been reached.
In my view, Germany is well positioned and should come through the crisis relatively well. This makes it all the more important that Germany is committed to cohesion in Europe and the EU. A stable Europe is the prerequisite for stable social and economic development in the coming years.