Almost one in five German companies decided to lay off workers or not to extend fixed-term contracts in April because of the economic impact of the pandemic, in an early indication of how challenging many European companies will find the return to work as lockdowns ease.
Germany’s restaurants, hotels and recruitment companies were particularly badly hit, with more than half cutting jobs, according to a survey of 6,500 businesses by the Ifo economics institute in Munich over the first three weeks of April, which was published on Monday.
The data showed even Europe’s strongest labour market is being shaken by the crisis, suggesting Germany’s attempt to shield workers from the impact of the pandemic with its subsidised short-term leave scheme is unlikely to prevent a sharp rise in unemployment.
“From now on, the [coronavirus] crisis will have an impact on the German labour market,” said Klaus Wohlrabe, head of surveys at Ifo.
More than 10m workers in Germany had by last month applied for the Kurzarbeit scheme, in which the government pays about two-thirds of their wages while they are on reduced hours or sent home, a record level of demand for the scheme that equates to more than a fifth of the workforce.
Despite this, the strict lockdown measures introduced to contain the spread of coronavirus left companies in many sectors with no choice but to cut jobs permanently, the Ifo survey found. As well as restaurants, hotels and recruitment companies, job cuts were also reported by more than a third of groups making leather goods and shoes, as well as travel, sports and entertainment companies.
The carmaking sector, which accounts for about a fifth of Germany’s manufacturing output and 5 per cent of all jobs, has been hit particularly hard by plant closures, supply chain disruption and plummeting sales. Almost four out of 10 vehicle manufacturers told Ifo they had cut jobs last month, as car production fell 97 per cent.
Germany entered the crisis with almost full employment and a jobless rate of only 5 per cent, one of the lowest in Europe. But economists at Deutsche Bank estimate this will rise as high as 8.5 per cent this year before falling back to 6 per cent next year. If the lockdowns are extended because of a fresh surge in infections, they said it could rise to as high as 13 per cent.
The country’s jobless ranks have already expanded by a record 373,000 people between March and April to reach 2.64m. That pushed up the unemployment rate to a three-year high of 5.8 per cent in April.
Normally Germany’s domestic-focused services sector acts as a buffer to any downturn in the export-focused manufacturing industry. However, Deutsche Bank economists said the services sector was being hit just as hard in this crisis, so it was “not providing a similar buffer for employment”.
Some sectors are proving more resilient; 5 per cent or fewer of the surveyed businesses in the pharmaceutical, construction, real estate, information technology, legal and tax advice and gaming and betting said they had cut jobs.
Germany has been steadily lifting its lockdown; many shops and schools at least partially reopened last month while restrictions are set to be lifted on restaurants, hotels and campsites in several regions this month. But some restrictions will stay in place until at least June, while public events are banned until August, and economists estimate economic activity will not rebound before the second half of the year at the earliest.
