The cities suffer particularly

The economic effects of the corona pandemic particularly affect cities. In contrast, rural areas get off lightly, as a study by the Munich Ifo Institute shows.

Cities are suffering particularly badly economically from the Corona crisis. In them, unemployment rose faster and the business climate deteriorated more than elsewhere, as a study by the Munich Ifo Institute shows. The unemployment rate in major German cities rose by almost 1.5 percentage points from January 2020 to August 2020. In rural areas it only increased by 0.3 to 0.8 points. By the end of the observation period in December 2020, the situation had eased somewhat, “the cities, however, were still clearly the worst,” said the head of the Ifo Center for Macroeconomics and Surveys, Andreas Peichl, explaining the result. The researchers examined four regional so-called clusters, each with similar demographic, structural and infection-related characteristics.

More services, less industry

The main reason for the poor location of the cities is the different economic structure compared to rural regions. The cities are dominated by services, retail, hospitality and tourism, sectors most affected by the restrictions of the pandemic. In contrast, there is even more industry and manufacturing in rural areas and small towns, which have recovered particularly strongly after the first lockdown in the spring of last year. The high proportion of stationary retail – a loser from the pandemic – in the value added in cities is also proving to be a burden. On the other hand, large online retailers like Amazon are the winners, but are more likely to be based near highways in the countryside. These differences within industries could explain the observation that cities are worse off in the pandemic, according to the Ifo study.

Tourism vulnerability

Another weak point is the dependence on tourism. While the cities host many business travelers and foreign visitors in normal times, rural tourism – at least in summer 2020 – will primarily benefit from domestic travelers. A closer look at the hotel companies in the Ifo company surveys confirmed this. In addition: the infection rate was higher in the second wave in the cities than in the countryside, emphasizes the Ifo Institute – with fatal consequences. “The occurrence of infections could have increased the fear of infection and thus intensified the slump in consumption,” said the authors of the study.

How lasting is the effect?

The authors of the study write that it is not yet possible to assess whether cities will continue to lose out from the corona crisis in the long term. “On the one hand, cities should benefit more than average from any catch-up effects after the crisis, when retail stores can open and social consumption is possible again.” On the other hand, trends such as home office and digitization could make central city locations less attractive from the point of view of companies, “so that they migrate to cheaper rural areas”. A potential wave of bankruptcies, for example in the catering industry, could also affect cities more and thus make them less attractive. After all, an improvement in the economic situation in Germany and especially in the cities can only be achieved through sustainable containment of the pandemic, explain the Ifo researchers.