Corona crisis hits northern economy differently

Together with the NORDAKADEMIE Foundation, the IfW Kiel has determined: The aid programmes for companies are not always effective.

Elmshorn, 19 March 2021 - The Corona crisis has left clear economic traces in the northern German states of Schleswig-Holstein and Hamburg. The respective gross domestic product has collapsed. However, a first-time evaluation shows clear differences between these two federal states and the industries. Together with the NORDAKADEMIE Foundation, the IfW Kiel has determined: The aid programs for the companies are not in every case purposeful.

While Hamburg's economic performance developed in line with the national average according to preliminary results, Schleswig-Holstein showed the smallest decline of all federal states, at least in the first half of 2020. This difference in performance reflects structural differences from which Schleswig-Holstein, unlike Hamburg, was able to benefit during the crisis. This is shown by a study prepared by the Kiel Institute for the World Economy (IfW Kiel) in cooperation with the NORDAKADEMIE Foundation. It draws the first comprehensive interim balance sheet, based on empirical data, of the economic consequences and the aid programmes in the first phase of the Corona crisis for the two federal states.

Different economic structures have an impact
In the first half of 2020, when there was the most severe slump in economic output due to the Corona crisis, Schleswig-Holstein recorded the smallest decline among the federal states, falling by 3.8 percent. Hamburg's GDP, on the other hand, fell much more sharply by 6.6 percent, which was in line with the national average. "However, the disruptions to supply and demand caused by the crisis had very different effects in the individual sectors. The intensity of the damage varied, and there were not only losers," said Klaus Schrader, one of the authors of the study and head of the Focus Analyses department at IfW Kiel.

"These industry differences are also the reason for the divergent overall development of the two structurally very different federal states: the industry mix in Schleswig-Holstein was less susceptible to the crisis. In Hamburg, the diversity of industries is smaller and the effects were correspondingly greater," said Henrique Schneider, Professor of Economics at NORDAKADEMIE.

Prof. Dr. Henrique Schneider, Professor of Economics at NORDAKADEMIE, is working with IfW Kiel on a study examining the economic consequences of the Corona pandemic in Northern Germany. The study draws the first comprehensive and empirical data-based interim balance sheet of the economic consequences and aid programmes in the first phase of the Corona crisis for the federal states of Hamburg and Schleswig-Holstein.

Parts of the retail trade in Schleswig-Holstein strongly affected
In Schleswig-Holstein, the development of sales in the economic sectors particularly affected by the crisis was very heterogeneous in 2020. The hospitality sectors were the biggest losers, with a year-on-year decline in sales of more than 20 percent by October, but were still able to limit the damage by the end of the year.

Although the manufacturing sector also showed a decline through November, it was much smaller at just under 6 percent. Nationwide, manufacturing had recovered by the end of the year after slumping in the spring.

In retail, the apparel, footwear and leather goods sectors were hit very hard - their sales shrank by as much as 80 percent year-over-year in individual months at the start of the pandemic. Despite temporary easing of the restrictions, sales had fallen by between 16 and 17 percent by November. In contrast, sales of food, building and DIY supplies and pharmaceuticals increased year-on-year during the first lockdown phase, with a positive sales trend already in place.

The effects on employment in the affected industries were less drastic. There were only slight changes in manufacturing, retail trade and motor vehicle sales. Food services and accommodations saw more significant declines through August, down 14 percent and nearly 11 percent, respectively. But as in other sectors, employment fell less than sales thanks to short-time work programs or even the reduction of time credits.

Balance of aid programs mixed

The experts also analyzed the aid programs of the federal government and of Hamburg and Schleswig-Holstein. The balance turns out overall mixed, so the conclusion of the study. In particular, the programs based on sales development and fixed costs are judged critically, as they are hardly suitable to strengthen the equity capital of affected companies. However, this is seen as crucial to enable fundamentally healthy companies to make a fresh start after the crisis. The long suspension of the obligation to file for insolvency also makes little economic sense. The longer the suspension of insolvency is granted, the greater the danger that over-indebted companies will consume a substantial part of their economic assets at the expense of their creditors.