Berlin The mood in Germany’s economy is catastrophic. The most important leading indicator, the Ifo business climate index, fell from 85.9 to 74.3 points in April. This is the lowest value ever measured. There has never been a stronger decline. “This is mainly due to the massive deterioration of the current situation,” said Ifo President Clemens Fuest on Friday.
In addition, companies have never been so pessimistic about the coming months. “The corona crisis hits the German economy with full force,” said Fuest. The crisis is now affecting all industries. Even the main construction industry is now worried about the future. So far, together with consumption, it has been the pillar of the economy.
The fact that the effects of the corona-related standstill would hit companies hard in April had become clearer every day since Easter. On Thursday, the Ifo reported that the crisis had hit the labor market: in industry and service providers, one in five companies surveyed by the Ifo want to lay off employees or not to extend temporary jobs.
It is 15 percent in retail, and two percent on construction that has so far been little affected by downtime. In almost all industries, more than 40 percent of companies want to postpone investments – even 31 percent of them are in construction.
How deep the recession will become in 2020 is currently difficult to estimate. “We do not know how much we can start the economy up again without increasing the risk of infection,” Monika Schnitzer told the Handelsblatt. The situation is not comparable to any post-war recession. However, she is confident that Germany will get there in the next few weeks if protective measures are increased and tracing apps are increased.
The purchasing manager index of the IHS Markit institute also fell to a record low on Thursday. In this manager survey, 75 percent of service providers and almost as many industrial managers said that their sales had shrunk significantly. Service providers’ sales fell more than ever in the 20-year history of this survey.
“Both domestic and export demand has collapsed,” writes IHS Markit economist Phil Smith. In the service sector, more jobs were cut than at the height of the financial crisis recession in April 2009, and in industry, too, the reduction in personnel accelerated – despite short-time work.
In any case, leading economists are starting to further lower their forecasts for 2020. The head of economic operations, Lars Feld, now expects that gross domestic product (GDP) will shrink by at least five and a half percentage points in 2020. It could shrink more than in the 2009 financial crisis recession.
Three and a half weeks ago, when the Economic Advisory Council for Economic Affairs Peter Altmaier (CDU) presented a special report on the corona pandemic, a minus of five and a half percent was still the worst-case scenario. However, the IMF expects German GDP to collapse by seven percent in 2020.
Even in the large economic research institutes, which predicted a minus of 4.2 percent for 2020 in their joint diagnosis two weeks ago, many expect that a five will be before the decimal point. The markets are therefore eagerly awaiting which recession forecast the Federal Government will commit to in the coming week.
However, Stefan Kooths, economic expert at the Kiel IfW, also warned that he would now outdo himself in horror scenarios: that April would be the low point of the year and that GDP would decline by ten percent in the second quarter, he said in early March already expected. The question now is how quickly a recovery can begin.
France: lowest since 1980
However, this also depends on how quickly the economy in the EU countries most affected by the pandemic can get going again, Italy, Spain and France. “As intertwined as our economy, for example, with that in Italy, we have to be very interested in the EU not breaking apart,” said Schnitzer. “It is not just about solidarity, it is in our interest if we help other EU countries,” she emphasized.
However, the prospects for the economy are currently catastrophic in all large EU countries. For example, the IHS Markit Purchasing Managers’ Index fell to a record low for the euro zone on Thursday. In Italy, the IMF expects GDP to decline 9.1 percent this year.
The mood in France’s economy also deteriorated massively in April due to the corona crisis. The business climate has dropped to the lowest level since the start of the surveys in 1980, according to data from the national statistical office Insee on Thursday. The index fell by 32 points to 62 points. There has never been such a sharp drop.
Economic activity in France was 35 percent lower in April than it was before the economy shutdown in March. Insee also does not expect the business climate to recover anytime soon. In this unprecedented environment, the behavior of companies and consumers can hardly be predicted. The French government expects gross domestic product to decline by eight percent this year.
More: According to the Ifo Institute, a fifth of German companies are planning to cut jobs due to the corona crisis.