Economic Impact of COVID-19 and War: Germany Faces 735 Billion Euro Loss

Germany's economy is reeling from a series of crises, including the COVID-19 pandemic and the ongoing conflict in Ukraine, resulting in an estimated financial burden of 735 billion euros, according to a recent study by the Institute of the German Economy (IW) in Cologne. This report highlights the profound impact these events have had on the nation's economic landscape, marking what experts describe as the most severe crisis since the reunification of Germany.

The IW's analysis indicates that after initially recovering from the shock of the pandemic, Germany has struggled to regain pre-2019 levels of economic activity for the past three years. The cumulative losses attributed to the pandemic and the war in Ukraine have surpassed even those experienced during the financial crisis of 2008-2009.

During the pandemic years of 2020 and 2021, losses were estimated at around 290 billion euros. The onset of the Russian invasion of Ukraine led to an immediate economic setback, with losses reaching approximately 100 billion euros in 2022. As the conflict continued into 2023 and 2024, these losses escalated further, with estimates of 145 billion euros and 200 billion euros, respectively. Overall, the cumulative losses from these crises now exceed those from previous economic downturns over the last quarter-century.

To provide context, the IW assessed that the economic downturn over the past five years has resulted in a 4.3% decline in the actual Gross Domestic Product (GDP), compared to a 3.4% decline during the structural crisis from 2001 to 2004 and a 4.1% decline during the financial crisis.

Private consumption significantly contributed to the economic contraction, with total losses in this area amounting to around 470 billion euros over the five-year period. This translates to a loss of approximately 5,600 euros per citizen. While private consumption was substantially affected during the pandemic due to lockdowns and business closures, the subsequent energy crisis and war have shifted the focus to investment losses. The IW noted that the decline in gross fixed capital formation over the past twenty quarters, totaling around 265 billion euros, poses a more significant long-term threat to economic recovery.

The IW's chief economist, Michael Grömling, emphasized the urgent need for strategic actions to revitalize Germany's economy. He pointed out that past government policies have contributed to the current situation, and the incoming administration, likely a coalition of CDU and SPD, will face the formidable task of steering the economy back to growth.

Grömling urged for measures that include tax incentives, more affordable energy solutions, and a reduction in bureaucratic hurdles to attract investment. He warned that the stagnation in investment activity could have long-lasting repercussions, limiting the economy's ability to tackle significant challenges such as digital transformation, demographic changes, and geopolitical tensions.