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Berlin´s Economy in 2020: Review & Outlook

The Covid-19 pandemic has posed an enormous challenge to the global and the local economies. Germany’s gross domestic product contracted by 5% in 2020 and Berlin's economic loss for the entire year 2020 is projected to be around 6%. While this is just an average number, many businesses faced far greater losses, while others proved to be more resilient and some even benefited from the crisis. Although the final picture remains to be seen yet, experts agree that the worst anticipations did not come true and recovery is on the horizon. 

Image by noelsch from Pixabay

 

Berlin's Economic Development in 2020

According to the Investitionsbank Berlin (IBB, Berlin Konjunktur), the German capital´s GDP suffered its greatest loss in the second quarter of 2020 (ca. -9% and -5.1% in H1 2020), which was followed by an unexpectedly fast recovery in the third quarter. The second lockdown has slowed down the economy again, but it is now less severe than in the spring of 2020, fewer sectors are affected overall and most supply chains remained in place. Nonetheless, the economic loss for the entire year 2020 is projected to be around 6%, according to the IBB. 

The local labour market saw a 0.2% decrease in employment compared to 2019, but it was the smallest decrease compared to all other federal states (-1.1% on average, excluding Berlin; Amt für Statistik Berlin-Brandenburg).The unemployment rate in December remained constant at 10.1% (Germany: 5.9%) compared to the previous month, according to the IBB.

The IBB Berlin Konjunktur paper as well as the press release of the Amt für Statistik Berlin Brandenburg provide a more differentiated picture on the different segments of the Berlin economic landscape:

In particular the tourism and hospitality sectors had a very grim year as a consequence of cancellations of numerous events and visits to the German capital. Hotels, inns and guesthouses were deprived of 57.8% in annual revenue (Germany: -41%) through October 2020 in a year-on-year comparison and tourism saw a decline of 47.3% in turnover and 59.5% in guest numbers, international travel has slowed down by as much as 72.8%. The gastronomy segment recorded a loss of 36.9% (Germany: -29.5%); IBB.

Business service providers, a sector which contributes to around 30% of Berlin´s GDP, was also hit hard by the pandemic with 5.7%-decline in turnover in the first three quarters of 2020, according to the IBB. Berlin´s Chamber of Commerce and Industry (IHK) stated that one fifth of the local businesses in the segment fear over insolvencies.

The retail segment, on the other hand, was able to offset the declines in the stationary non-food segment with increased online and food trade: retail as a whole recorded a plus of 0.5% in turnover, (through September 2020; IBB).

Berlin´s industry sector did exceptionally well during 2020 and stood out from its Germany-wide counterpart. According to the statistics by the Amt für Statistik Berlin Brandenburg, Berlin´s industry sector has recorded a 23.2 billion Euros in revenues through November 2020, a plus of 0.3% compared to the same period a year before (while the number of orders fell by 4.4%).

The most dynamic sub-segments were the pharmaceutical products with a 21.9%-growth (although orders declined by 2.3%), the production electrical equipment with a 72.1%-plus in sales turnover (orders increased by 134.1%), food and animal feed production, and the repair and installation of machinery (Amt für Statistik Berlin Brandenburg)

Berlin´s Digital Industry is Germany´s leading employer with 109,000 employees, according to the IHK Berlin, and is the main local economic driving force. With the digitalization push during the pandemic, the Information Services segment saw 12.5%-growth and the Information Technology, +3.4%, according to the IBB.

The construction industry recorded 4.4%-increase in sales, from January to November 2020, but its orders declined by 19.6%; Amt für Statistik Berlin Brandenburg.

And, finally, on a micro level, a few hopeful examples, listed in the 2020 annual report by the local service provider Berlin Partner, show how some individual businesses could make a virtue out of the crisis:  The traditional business Berlin Neukölln Spezialpapier started producing an eco-version of protective masks; a newcomer Delco International built a local production facility for FFP2 masks; and the shoe care manufacturer COLLONIL reacted to the corona crisis by switching to the production of disinfectants; even Berlins first anti-corona hotel is being developed in Neukölln (by BOB Immobilien-Gruppe) that will feature extra hygiene equipment, such as touch-free controls in elevators, UV light desinfection and other safety measures.

Outlook

While 2020 was a harsh year, the damage caused to the German economy by the pandemic was overall less severe than during the financial crisis in 2009 (-5.7%). The economic activity is also recovering faster than expected as could be seen during 2020, when the sharpest dip of nearly 12% in the first half of the year was followed by a growth of 8.5% in the third quarter, once restrictions were eased again.

With the second lockdown, economic activity is expected to contract also during the first half of 2021. But this time, most supply chains could be kept in place, fewer sectors were affected overall and far fewer insolvencies and employee redundancies were recorded so far.

With the now available vaccine and the approaching warmer temperatures, recovery is in closer reach, but some risks remain, such as possible mutations of the virus, that might not be held in check, and, with the recovery of the global economy, central banks could rethink the currently beneficial financing conditions that could impact investment appetite.

The latest forecasts of the Federal Ministry for Economic affairs suggest a 3%-growth (down from the October forecast of 4.4%) in 2021. Berlin´s economy is set to grow by 4% in 2021, according to the IBB. However, experts agree that it would take at least another year to reach the economic levels of 2019.

Berlin as a business location remains an attractive destination for new companies as well as capital investment. As it could be seen, the German capital´s core industries continue to thrive despite, and some even because of crisis by moving and, or expanding business areas to pandemic-related products or services.