What next?

Chief Eco­no­mist Dr Gertrud R. Traud discus­ses COVID-19, Trump, Brexit and risks in the resi­­den­tial real estate market.

March 2020

What conse­quences can we expect from the global spread of corona­virus?

The corona­virus out­break has devel­o­ped into a pan­de­mic. Drastic steps such as move­ment restric­tions and lock­downs have been imple­men­ted to reduce the risk of trans­mis­sion, but econo­mic life has largely stalled as a result. Global reces­sion seems inevi­table for 2020. Packages of mone­tary and fiscal policy measures on an un­dreamt-of scale are intended in particular to limit the number of company failures and jobs lost. We have to have confi­dence that our medi­cal rese­archers will find a way to control COVID-19 in the medium term, but by then the world will be a rather dif­fe­rent place. Natio­nal debt is going to increase signi­fi­cantly. Natio­nal govern­ments may choose to exert greater control over econo­mic affairs and suppress market forces, depending on the length of the crisis and the time for which the mea­sures imple­mented in res­ponse remain in force.

What will happen if the US re-elects the incumbent president?

The world is going to have to adapt to a much more incle­ment climate in inter­natio­nal trade even after the restric­tions on trade intro­duced on medical grounds due to corona­virus are lifted, which we have to hope will happen sooner rather than later. The effects of the pan­de­mic in the US are most likely to have the greatest negative impact in the second quarter. Donald Trump, who aims to win re-election in November, will have to decide whether he wants to present himself as a protec­tionist or as the great man of business. He has shown a pre­fe­rence for the former in the past, sug­gesting that other countries were threa­ten­ing American jobs. More than once recently he has used the phrase "Chinese virus" to under­line the per­ceived external threat. He has also made a point in the past of using econo­mic growth and the state of the stock market as a baro­meter of his success, however, so his re-election campaign needs a strong economy – and hence also dynamic global trade. This indicates that he is pro­bab­ly more likely to adopt an open stance to the world, at least until the votes have been cast. If he wins though, it is perfectly possible he might then return to his old protec­tionist approach. It should not be over­looked, more­over, that the Demo­crats too are no great enthu­siasts for free trade.

What will happen to the resi­dential real estate market if Germany falls into recession?

We expect German aggre­gate out­put to shrink by at least 4 percent in 2020, bring­ing to an end what has been a very long recovery. Resi­dential real estate prices will stop rising for the time being and will probably begin to fall in a few parti­cu­larly highly valued segments. Key interest rates are going to remain extre­mely low for even longer because of the pan­de­mic, but the sharp increase in govern­ment spending will tend to push up the cost of bor­row­ing in the capital market. Bond purcha­sing by the ECB could ame­lio­rate this effect some­what, but it is to be ex­pec­ted that Germany too will have to pay a risk premium. If short-time working arrange­ments prevent any dramatic increase in unem­ploy­ment and if the number of insol­vencies can be kept within limits, demand for real estate will not remain subdued for long. Here too, however, it has to be said that our politi­cians are incre­a­singly looking to regu­lation rather than compe­tition – although the action taken to date has not suc­cee­ded in closing the gap bet­ween supply and demand.

What happens if no agree­ment is reached on the future relation­ship between the UK and the EU after Brexit?

The risk exists that border controls could be intro­duced abruptly at the end of 2020 if, despite expec­ta­tions to the contrary, the British are unable to reach agree­ment with the EU. The organi­sa­tional and legal difficul­ties this would create seem almost bound to throw foreign trade into tur­moil at first. The British eco­nomy would suffer and the EU too, es­pe­cial­ly Germany, would be faced with a down­turn in exports. A no-deal Brexit could there­fore have a notice­able impact on the economy, es­pe­cial­ly if the world is fight­ing to recover from the corona­virus reces­sion at the same time.

Dr Gertrud R. Traud, Chief Economist at Helaba
Dr Gertrud R. Traud, Chief Economist at Helaba

Dr. Gertrud R. Traud

Dr Gertrud R. Traud has been Helaba's Chief Economist for 15 years and one of the very few woman to hold such a post in Germany. Dr Traud and her research team produce numerous publications every year including the Markets and Trends report, which presents the annual economic and capital market outlook based on a variety of global economic scenarios developed for the purpose. Published every autumn, Markets and Trends always has a subtitle appropriate to the report's predictions. The primary scenario for 2020, for example, is "Curtain up! Melodrama – next act." The forecasts thus far have proven to be extremely accurate.

Additional topics

Coronavirus, Symbolbild

The coronavirus pandemic is convulsing the economy and financial markets. Learn more about the effects in our Capital Markets Briefly.

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