The pandemic has posed unprecedented challenges to society and the economy. What is the best way to stop the virus without permanently damaging the economy?



In a nutshell

In January 2020, the novel lung disease COVID-19 became an epidemic in China. Within the space of two months, the World Health Organization had declared it a pandemic, and the global economy was in its grip. As in many other countries, Germany’s public life and parts of its economy shut down for several weeks due to state-imposed contact restrictions. As the lockdown ended and the summer came, the spread of the virus appeared to have all but stopped. But in the fall the pandemic’s second wave inundated Germany; a third wave followed in spring 2021. Of all the areas of the economy affected by the virus, the service sector was hit hardest.

The longer the contact restrictions persisted, the greater their toll on society. In addition to massive government spending on short-time work and emergency aid to companies on the verge of bankruptcy, the restrictions limited participation in education, especially for disadvantaged children and young people, and have dampened the mood of a society cut off from social encounters, family celebrations and cultural life. Since vaccinations began in early 2021, there’s been some light at the end of the tunnel. Nevertheless, Germany will have to live with the virus for many months to come. That is why it needs a strategy that restores normal life and economic activity without letting infection numbers get out of hand. This will require an intelligent combination of vaccinations, testing, and individual responsibility.

Economic interests and anti-corona measures must not be played off against each other. Instead, it is important to adopt effective containment measures in time. German politicians seem to have missed the right time for targeted measures to curb the fourth wave beginning in autumn 2021. The fifth (omicron) wave must now be anticipated in time.

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All experts, press releases, publications and events on the Corona crisis

Since the start of the pandemic, IWH economists have carefully studied its economic effects in the short and medium term. They have analysed the pandemic’s development, the measures introduced to slow viral transmission, and the consequences for the economy in Germany, Europe, and the world. Their reports appear in IWH’s quarterly economic forecasts, in the half-yearly joint economic forecasts set up together with the other German economic research institutes, and in the IWH Flash Indicator forecasting the upcoming quarter.

Recently, using a model that describes the relationship between economic mobility and infection rates, IWH researchers estimated that the relaxation of containment measures in March 2021 increased economic mobility in Germany by 10% and the number of infections and deaths by 25% each.

In General, IWH believes that the best economic policy is the successful containment of the pandemic. For instance, its researchers support the government taking on debt to finance state aid during the crisis. But they argue that money should be used to help areas of society and the economy that are actually hurting instead of using it to stimulate general consumption, as with the decision to lower sales tax last year.

Is a wave of bankruptcies imminent?

The bankruptcy rate is a good way to measure the economic impact of the corona crisis. A company’s involuntary exit from the market brings job losses and leaves supplier high and dry, which can induce chain reactions in other companies. A recent IWH Policy Note explains the significance of bankruptcies as an economic indicator and how to measure them with only a short time lag.

In May 2020, shortly after the first corona lockdown, the IWH’s bankruptcy research unit launched the IWH Bankruptcy Update, a well-regarded monthly source of pandemic-related economic information. Two months ahead of official government statistics, it provides and interprets data on bankruptcies in Germany. In the summer 2020, the IWH noted an increase in bankruptcies among large companies. Since then, bankruptcies have remained almost entirely below pre-crisis levels. IWH has not detected a looming wave of bankruptcies in the data, though the true number of insolvent companies may be concealed by state aid and the suspension of the obligation to declare bankruptcy.

Another Policy Note compared bankruptcies in 2020 with the long-term decline in insolvencies that began before the crisis. Based on the relationship of past bankruptcies to short-term economic developments, IWH researchers provided a prognosis of insolvencies in response to the corona shock. They then found that the actual number of bankruptcies was far lower – an indication of the effect of state aid and the suspension of the obligation to file for bankruptcy. The study also showed that most of the bankruptcies were concentrated in industries especially affected by the pandemic.

The crisis has jeopardised financial stability

Unlike the global financial crisis in 2008–2009, which originated in the financial sector and then spilled over into the rest of the economy, the corona crisis directly hits the real economy. Yet if many companies become insolvent due to the crisis, banks can be put at risk. In its June and July 2020 Policy Notes, the IWH pointed to this danger and projected its potential magnitude in various scenarios. It found that even if the economy recovers swiftly – an optimistic assumption – dozens of German banks could face insolvency as a result of loan defaults. Institutions that are particularly vulnerable are cooperative and savings banks that finance hard-hit sectors such as retail and hospitality. In some German regions, many banks were both undercapitalised and held credit portfolios full of borrowers greatly affected by the corona crisis.

When banks are in trouble, the supply of credit for companies starts to run dry, which can trigger a second-order recession. So far, generous government aid for companies has prevented massive credit defaults. But this has produced a growing number of zombie companies that have come to depend on money from the state. At some point, a wave of insolvencies will come. Germany’s banking supervision must work to strengthen the capital base of at-risk banks. Otherwise, the state will once again have to use taxpayers’ money to bail out banks without systematically restructuring their credit portfolios.

We need a new corona strategy

After the first wave of the virus in the spring 2020, IWH President Reint Gropp called for comprehensive testing for the working-age population and protective isolation for risk groups to give people some normalcy again. At that time, a vaccine was not yet in sight. Now, the vaccination campaign is underway, and, together with rapid tests, constitutes a pillar of the pandemic response. State control must eventually give way again to individual responsibility. The lockdown is a blunt instrument and it no longer reflects the needs of the moment. When extended indefinitely, it damages the economy, undermines educational opportunities, increases social inequality, endangers mental health, and erodes trust in democracy.

Publications on the Corona crisis


Aktuelle Trends: Weniger Gewerbeabmeldungen seit Beginn der Pandemie

Steffen Müller

in: Wirtschaft im Wandel, No. 4, 2021


Seit dem Beginn der Pandemie im Frühjahr 2020 ist die Zahl der Gewerbeabmeldungen in Deutschland nicht gestiegen, sondern deutlich gesunken. Die Zahl der Gewerbeanmeldungen hat den Einbruch zu Beginn der Pandemie dagegen im Jahr 2021 wieder wettgemacht. Dass die Gewerbeabmeldungen auch im Jahr 2021 noch weit unter den Werten von vor der Pandemie liegen, deutet darauf hin, dass viele Unternehmen, auch dank staatlicher Hilfen, in einer Art Dämmerzustand verweilen und die dort unproduktiv gebundenen Produktionsfaktoren nicht im gesamtwirtschaftlich gewünschten Umfang in andere, produktivere Verwendungen überführt werden.

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Kommentar: Weniger Krisenmodus und wieder mehr Wettbewerb, bitte!

Steffen Müller

in: Wirtschaft im Wandel, No. 4, 2021


Ende November kam die frohe Kunde aus Nürnberg: Die Arbeitslosenzahlen sind weiter gesunken, sogar den zehnten Monat in Folge. Was auf der einen Seite erfreulich ist, zeigt auf der anderen Seite, dass Arbeitskräftemangel eines der größten Probleme der deutschen Wirtschaft ist. 

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Konjunktur aktuell: Deutsche Wirtschaft noch nicht immun gegen COVID 19 – Ausblick erneut eingetrübt

Arbeitskreis Konjunktur des IWH

in: Konjunktur aktuell, No. 4, 2021


Ende 2021 belastet eine neue Infektionswelle die wirtschaftliche Aktivität in Europa. Die Stimmung im Dienstleistungsbereich ist im Herbst weltweit gestiegen, doch das Verarbeitende Gewerbe leidet weiter überall unter Knappheiten. Im Sommerhalbjahr 2022 gewinnt die Weltkonjunktur wieder etwas an Schwung, aber der ungewisse Fortgang der Pandemie bleibt ein Risiko. Pandemiewelle und Lieferengpässe lassen auch die deutsche Wirtschaft im Winter stagnieren. Der private Konsum wird ab Frühjahr deutlich zulegen, und die Konjunktur wird wieder kräftig in Schwung kommen. Das BIP wird 2022 um 3,5% zunehmen, nach 2,7% im Jahr 2021. Die Inflation dürfte nur langsam zurückgehen.

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The Macroeconomics of Epidemics

Martin S. Eichenbaum Sergio Rebelo Mathias Trabandt

in: Review of Financial Studies, No. 11, 2021


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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IWH-Flash-Indikator IV. Quartal 2021 und I. Quartal 2022

Katja Heinisch Oliver Holtemöller Axel Lindner Birgit Schultz

in: IWH Flash Indicator, No. 4, 2021


Die wirtschaftliche Erholung in Deutschland setzte sich im dritten Quartal 2021 weiter fort. Das Bruttoinlandsprodukt stieg um 1,8%, nach 1,9% im Vorquartal. Einer stärkeren Erholung standen weiterhin bestehende Lieferketten- und Beschaffungsprobleme sowie kräftig steigende Preise insbesondere im Energiebereich entgegen. Beides wird den Aufschwung in Deutschland wohl noch einige Zeit dämpfen. Pandemiebedingte Angebotsrestriktionen für Dienstleistungen gab es hingegen kaum noch. Da die Impfquote zuletzt stagnierte und die Anzahl der in Krankenhäusern behandelten Corona-Infizierten aktuell wieder stark steigt, werden verstärkte Restriktionen vor allem für bisher noch nicht Geimpfte geplant. Dies dürfte letztlich die private Nachfrage wieder bremsen und könnte auch Beschäftigungsverhältnisse erschweren. Insgesamt wird die Wirtschaft in Deutschland laut IWH-Flash-Indikator im vierten Quartal 2021 wohl stagnieren und im ersten Quartal 2022 dann um 0,6% zulegen (vgl. Abbildung).

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