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Coronavirus: 1 in 4 German companies expects to put staff on short hours

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
02 March 2020, Lower Saxony, Salzgitter: A crane lifts a pig iron ladle in the steelworks of Salzgitter AG. Photo: Hauke-Christian Dittrich/picture alliance via Getty Images

A quarter of German companies expect to put their employees onto short-time work in the next three months as the coronavirus pandemic brings businesses to a near-standstill, in what would be the highest amounts of workers on reduced hours since 2010.

According to the latest economic survey by the Munich-based Ifo Institiute, 25.6% of companies expect to stand-down their staff or reduce their hours in the coming 12 weeks, with the automotive, mechanical engineering and electronics sectors being the worst affected. The only sectors where it has not been an issue so far are food and chemicals.

READ MORE: Coronavirus: VW and Daimler to put tens of thousands onto reduced hours as plants close

"The full extent of the corona pandemic has probably not yet been taken into account in all these figures, because most of the responses were received by mid-March," said economist and survey-lead Klaus Wohlrabe.

Last week, car giants Volkswagen (VOW3.DE) and Mercedes-Benz owner Daimler (DAI.DE) said they would need to put thousands of staff onto reduced hours, after car companies all shuttered their plants.

“Kurzarbeit” or “short-time work” is a tool introduced by the German government during the financial crisis in 2008, where the government pays around 60% of a worker’s salary to the company, so it can pay the person while they are temporarily laid off. The aim is to avoid mass layoffs, and also to make it easier for companies to get up to full speed again once the crisis is over without having to go through a lengthy re-hiring process.

READ MORE: Germany bids goodbye to ‘black zero’ with €750bn coronavirus package

The federal government announced this month that it will make it easier for companies to apply for Kurzarbeit for their employees.

Berlin’s massive €750bn (£669bn, $829bn) package of measures to combat the COVID-19 crisis includes billion of euros in loans from the state-owned development bank, to try and stop companies going bankrupt, as well as financial aid for freelancers and small businesses with 10 or fewer employees.

The government’s council of economic advisors said today that a recession in the first half of the year is “inevitable” in Germany. They predict a worst-case scenario of a 5.4% drop in GDP and at best a 2.8% fall, depending on how long the shutdown of businesses due to coronavirus lasts, and how quickly the economy recovers.