How much longer? What business needs to prepare for during the Covid-19 pandemic

The coronavirus pandemic has plunged the global economy into a deep recession and many companies are struggling as a result. Is the worst over now? When will things return to normal? Our economists have divided the crisis into five phases.


Emergency phase

  • By February 2020 at the latest, it became clear that Covid-19 would not be limited to China and it became a global pandemic.
  • Within a few weeks, the global economy plunged into a deep recession. In Germany alone, GDP in the second quarter plummeted by 10 percent - the sharpest decline since quarterly measurements began in 1970.
  • Politicians reacted by introducing lockdowns, but also by supplying rapid financial aid for companies and entrepreneurs. It was becoming increasingly clear that the virus would continue to affect the economy for longer than anticipated.

Recovery phase

  • The outlook for the economy and entrepreneurs had improved since the low point in spring, partly because public stabilisation and economic stimulus programmes started to take effect.
  • Germany was doing well compared with the rest of the world and received much praise for doing so. Far fewer people lost their jobs in Germany than in the United States, for example
  • After the massive economic slump in the second quarter the growth in the third quarter, of more than eight percent, was impressive. After the lockdown ended, private consumption, investments and exports all picked up again in the summer – albeit from a lower level.

Disillusionment phase

  • The global economy is set to slow again in the fourth quarter and the first months of 2021 – mainly because the virus is spreading faster again during the autumn and winter.
  • Politicians are being forced to reintroduce restrictions.
  • A return to pre-crisis economic levels is not yet in sight in Germany, Europe or the US. And as long as it remains unclear as to whether the infection figures can be kept under control, all forecasts are extremely precarious.

Normalisation phase

  • We are currently moving towards this phase. As effective vaccines are available more quickly than anticipated, the outlook for 2021 has improved significantly. Our analysts’ baseline scenario indicates growth is likely to pick up in the course of the first half of 2021.
  • The US could reach pre-crisis GDP levels in the second half of 2021, Europe at the end of 2021.
  • However, there is still a risk that the expectations for a vaccine are exaggerated and that we will have to live with the virus for a longer period.
  • This would further slowdown the economy, but at the same time accelerate its digital transformation.

Repayment phase

  • World debt is expected to reach a new post-war record next year.
  • Central banks are likely to continue to print money on a massive scale, even if inflation picks up.
  • This means negative real interest rates for many years, if not decades. Anyone who invests money in German government bonds today, for example, will not even get back  the capital at the end of the term. Adjusted for inflation, the value of savings will shrink over time, too.

The long-term perspective: globalisation lives on – but it is changing

  • The age of unhindered globalisation characterised by more and more free trade, lower tariffs and international rules is coming to an end.
  • The coronavirus pandemic is reinforcing the trend towards greater protectionism, a development that had already started to develop prior to the pandemic. Many sectors are affected, not least in Germany, where the economy is strongly export-oriented. One example: the US recently increased import duties on jam. Globalisation is becoming a patchwork quilt.
  • The conflict between the US and China is intensifying, putting many European companies in a quandary. For example, the two superpowers could push for companies to do less or no business with the other side.
  • The coronavirus pandemic is accelerating the technology race, with opportunities for companies that are prepared to take them.
  • Only a united Europe can keep up economically and politically.
  • Conclusion: the coronavirus pandemic is likely to shape a considerable part of 21st century economics. We are on the cusp of a new era – an era of disorder.

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