15.06.2021 • 16/2021
Increase in personal contacts spurs economic activity
This summer the economic outlook in Germany is bright. As the pandemic is in retreat, the restrictions that have hampered many service activities are likely to be gradually lifted, and a strong boost in private purchases can be expected. The Halle Institute for Economic Research (IWH) forecasts that gross domestic product will increase by 3.9% in 2021 and by 4.0% in 2022. Production in East Germany is expected to increase by 3% in both years, respectively.
Oliver Holtemöller
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European Firm Concentration and Aggregate Productivity
Tommaso Bighelli, Filippo di Mauro, Marc Melitz, Matthias Mertens
IWH Discussion Papers,
No. 5,
2021
Abstract
This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power.
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European Firm Concentration and Aggregate Productivity
Tommaso Bighelli, Filippo di Mauro, Marc Melitz, Matthias Mertens
IWH-CompNet Discussion Papers,
No. 3,
2021
Abstract
This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power.
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15.04.2021 • 12/2021
Economy in East Germany shrank less than in the West, but will have weaker momentum when pandemic disappears – Implications of the Joint Economic Forecast Spring 2021 and new data for East Germany
At 3%, the increase in gross domestic product in eastern Germany in 2021 is likely to be lower than in Germany as a whole (3.7%), as the slump due to the pandemic was smaller in 2020. In the course of the economic recovery in the second half of the year, the unemployment rate is expected to fall slightly.
Oliver Holtemöller
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15.04.2021 • 11/2021
Pandemic delays upswing – Demography slows growth
In their spring report, the leading economic research institutes forecast an increase in gross domestic product of 3.7% in the current year and 3.9% in 2022. The renewed shutdown is delaying the economic recovery, but as soon as the risks of infection, particularly from vaccination, have been averted, a strong recovery will begin. The economy is likely to return to normal output levels around the start of the coming year.
Oliver Holtemöller
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30 Years after Reunification, Gross Domestic Product has Served its Purpose as an Indicator
Oliver Holtemöller
Wirtschaftsdienst,
Konferenzband "30 Jahre Deutsche Einheit", März
2021
Abstract
The comparison of living conditions in East and West Germany is often based on the gross domestic product per inhabitant. However, this measure is not a good welfare indicator in itself. It can be assumed that, measured by the gross domestic product per inhabitant, there will be no further significant equalisation of economic power in East and West Germany in the foreseeable future. This is because the age structure of East Germany, i.e. the ratio of employed persons to inhabitants, is less favourable than in the West. On the other hand, if one looks at important welfare indicators such as consumption opportunities, life expectancy, leisure time and income inequality, living conditions in East and West Germany are more similar than the gross domestic product per inhabitant suggests. In the debates on the catching-up process of East Germany, more emphasis should therefore be placed on labour productivity as a measure of economic strength and on welfare indicators as a measure of the equalisation of living conditions.
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04.03.2021 • 7/2021
IWH Bankruptcy Update: German Bankruptcy Rates Remain Low in February
Bankruptcies statistics trended sideways at a low level in February 2021. Furthermore, the Halle Institute for Economic Research (IWH) does not anticipate higher bankruptcy rates in the coming months, despite Germany’s prolonged lockdown. These are the key findings of the IWH Bankruptcy Update, which provides monthly statistics on corporate bankruptcies in Germany.
Steffen Müller
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Why Are Households Saving so much During the Corona Recession?
Reint E. Gropp, William McShane
IWH Policy Notes,
No. 1,
2021
Abstract
Savings rates among European households have reached record levels during the Corona recession. We investigate three possible explanations for the increase in household savings: precautionary motivations induced by increased economic uncertainty, reduced consumption opportunities due to lockdown measures, and Ricardian Equivalence, i.e. increases in the expected future tax-burden of households driven by increases in government debt. To test these explanations, we compile a monthly panel of euro area countries from January 2019 to August 2020. Our findings indicate that the chief driver of the increase in household savings is supply: As governments restrict households’ opportunities to spend, households spend less. We estimate that going from no lockdown measures to that of Italy’s in March, would have resulted in the growth of Germany’s deposit to Gross Domestic Product (GDP) ratio being 0.6 percentage points higher each month. This would be equivalent to the volume of deposits increasing by roughly 14.3 billion euros or 348 euros per house monthly. Demand effects, driven by either fears of unemployment or fear of infection from COVID-19, appear to only have a weak impact on household savings, whereas changes in government debt are unrelated or even negatively related to savings rates. The analysis suggests that there is some pent-up demand for consumption that may unravel after lockdown measures are abolished and may result in a significant increase in consumption in the late spring/early summer 2021.
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16.12.2020 • 26/2020
New wave of infections delays economic recovery in Germany
The lockdown is causing production in Germany to decline at the end of the year. When restrictions will be relaxed again, the recovery is likely to pick up pace only slowly, partly because the temporary reduction in value-added taxes is expiring. In spring, milder temperatures and an increasing portion of the population being vaccinated are likely to support the German economy to expand more strongly. The Halle Institute for Economic Research (IWH) forecasts that gross domestic product will increase by 4.4% in 2021, following a 5% decline in 2020. In East Germany, both the decline and the recovery will be significantly less pronounced.
Oliver Holtemöller
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High public deficit not only because of Corona - Medium-term options for action for the state
Andrej Drygalla, Oliver Holtemöller, Axel Lindner, Matthias Wieschemeyer, Götz Zeddies, Katja Heinisch
Konjunktur aktuell,
No. 4,
2020
Abstract
According to the IWH's medium-term projection, Germany's gross domestic product will grow by an average of ½% in price-adjusted terms in the years to 2025, which is 1 percentage point slower than in the period from 2013 to 2019. This is due not only to the sharp slump in 2020, but also to the fact that the labour force will decline noticeably. Government revenues will be expanding much more slowly than in previous years. Even after the pandemic crisis is overcome, the state budget is likely to have a structural deficit of about 2% relative to GDP if the legal framework remains unchanged, and the debt brake will continue to be violated. Consolidation measures to reduce this deficit ratio to ½ % would push production in Germany below the normal rate of capacity utilization. Simulations with the IWH fiscal policy model show that consolidation on the expenditure side would reduce production by less than consolidation on the revenue side. There is much to be said, also from a theoretical point of view, for not abolishing the debt brake, but for relaxing it to some extent.
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