20.12.2022 • 31/2022
No deep recession despite energy crisis and rise in interest rates
High energy prices and deteriorating financial conditions are weighing on the German economy. However, the period of weakness over the winter is likely to be moderate, partly because the energy price brakes are supporting private incomes. The Halle Institute for Economic Research (IWH) forecasts that due to the recovery from the pandemic in the first three quarters, gross domestic product (GDP) is estimated to have increased by 1.8% in 2022. Due to high energy prices, however, GDP will slightly decline in the winter months and stagnate on average in 2023. Inflation will fall from 7.8% in 2022 to 6.5% in 2023.
Oliver Holtemöller
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29.09.2022 • 24/2022
The East German economy expanded strongly in the first half of 2022, but falls into recession in the second half of the year ‒ Implications of the Joint Economic Forecast Autumn 2022 and of Länder data from recent publications of the Statistical Office
The energy crisis is pushing the German economy into recession. This also affects the economy in East Germany. According to the Halle Institute for Economic Research (IWH), East German production will expand at a slightly stronger rate of 1.5% than in Germany as a whole. For the coming year, the decline in East Germany is expected to be less pronounced than in the west at 0.1% (Germany: ‒0.4%). For 2024, the economists forecast a growth of 1.7% (Germany: 1.9%).
Oliver Holtemöller
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21.06.2022 • 14/2022
War drives up energy prices ‒ High inflation weighs on economy
While the lifting of nationwide coronavirus regulations boosts many service sectors such as the hospitality industry, supply bottlenecks are likely to weigh on the manufacturing sector throughout the summer and high inflation will dampen private consumption. Gross domestic product (GDP) in Germany is expected to decline slightly in the second quarter of 2022. The situation in the manufacturing sector is expected to ease towards the end of the year. The Halle Institute for Economic Research (IWH) forecasts that GDP will increase by 1.5% in 2022, following an increase by 2.9% in 2021. In East Germany, GDP will increase by 1%.
Oliver Holtemöller
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The Macroeconomics of Testing and Quarantining
Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt
Journal of Economic Dynamics and Control,
May
2022
Abstract
We develop a SIR-based macroeconomic model to study the impact of testing/ quarantining and social distancing/mask use on health and economic outcomes. These policies can dramatically reduce the costs of an epidemic. Absent testing/quarantining, the main effect of social distancing and mask use on health outcomes is to delay, rather than reduce, epidemic-related deaths. Social distancing and mask use reduce the severity of the epidemic-related recession but prolong its duration. There is an important synergy between social distancing and mask use and testing/quarantining. Social distancing and mask use buy time for testing and quarantining to come to the rescue. The benefits of testing/quarantining are even larger when people can get reinfected, either because the virus mutates or immunity is temporary.
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26.04.2022 • 10/2022
Regional effects of a recession in Germany triggered by an import stop for Russian gas
A halt in Russian gas deliveries would lead to a recession in the German economy. Not all regions would be equally affected: The Halle Institute for Economic Research (IWH) expects a significantly stronger slump in economic output in regions where the manufacturing sector has a large weight than elsewhere.
Oliver Holtemöller
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The (Heterogenous) Economic Effects of Private Equity Buyouts
Steven J. Davis, John Haltiwanger, Kyle Handley, Josh Lerner, Ben Lipsius, Javier Miranda
IWH Discussion Papers,
No. 10,
2022
Abstract
The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 13% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 13% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms.
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17.03.2022 • 6/2022
Price shock jeopardises recovery of German economy
Russia’s war in Ukraine is hitting the German economy primarily via an energy price shock, but also by disrupting trade flows and causing general uncertainty. At the same time, however, the economy is receiving a strong boost from the lifting of many pandemic restrictions. The Halle Institute for Economic Research (IWH) forecasts that gross domestic product will increase by 3.1% in 2022. The consumer price index will be 4.8% higher than one year ago. The war affects the East German eco-nomy about as hard as the economy in Germany as a whole.
Oliver Holtemöller
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26.01.2022 • 2/2022
Investment, output gap, and public finances in the medium term: Implications of the Second Supplementary Budget 2021
With the Second Supplementary Budget 2021, the German government plans to allocate a reserve of 60 billion euros to the Energy and Climate Fund. This additional spending is also meant to reduce the macroeconomic follow-up costs of the pandemic. According to the IWH’s medium-term projection, the expenditure is expected to increase output by about 0.5% at the peak of its impact in 2024. “While this macroeconomic effect is welcome, the additional investment will by no means compensate for the lack of investment activity since the beginning of the pandemic,” says Oliver Holtemöller, head of the Department Macroeconomics and vice president at Halle Institute for Economic Research (IWH). Moreover, the supplementary budget is likely to reduce confidence in the reliability of the debt brake.
Oliver Holtemöller
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14.12.2021 • 29/2021
German economy not yet immune to COVID 19 ‒ outlook clouded again
The current pandemic wave and supply bottlenecks cause the German economy to stagnate in winter. When infection rates go down in spring, private consumption will increase significantly. In addition, supply restrictions will be gradually reduced. As a result, the economy will regain momentum. The Halle Institute for Economic Research (IWH) forecasts that German gross domestic product will increase by 3.5% (East Germany: 2.7%) in 2022, after 2.7% (East Germany: 2.1%) in the current year. Inflation is expected to decline only slowly.
Oliver Holtemöller
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The Macroeconomics of Epidemics
Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt
Review of Financial Studies,
No. 11,
2021
Abstract
We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people cut back on consumption and work to reduce the chances of being infected. These decisions reduce the severity of the epidemic but exacerbate the size of the associated recession. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the United States.
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