“Ending the ‘Whatever It Takes’ Crisis Mode”

The Federal Statistical Office today published the first calculations on gross domestic product (GDP) and general government net lending/borrowing for 2021. According to the results, GDP increased by 2.7 per cent and the general government deficit amounted to 4.3 per cent of GDP in the second year of the pandemic. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, has commented on this matter:

“The recovery from the pandemic has been rather disappointing so far due to supply bottlenecks and new waves of infection since the autumn. However, this is no reason to be pessimistic about the economy in the new year. Pent-up demand is high and will provide for very strong growth as soon as the slowing effects of the supply bottlenecks and the Omicron wave subside. The continued high government deficit, at the same level as in 2020, should not give excessive cause for concern considering the severity of the economic shock caused by the pandemic. Germany has so far been able to keep its new pandemic-induced debt at a comparatively low level compared to many other OECD countries. For 2022 and the following years, however, it is essential to end the ‘whatever-it-takes’ crisis policy mode. Pandemic aid must now be provided in a much more targeted manner than in the last two years. Otherwise, there is a growing danger that the state will obstruct the inevitable structural change. Already, with the very generous short-time work schemes, there is a growing risk that unprofitable jobs and companies will be kept artificially alive. From now on, the state must look much more closely at its COVID-19 aid to prevent zombification in the service sector.”