Recover to Start Now in Germany – Sentiment Among German Companies Recoveres Too!
The ifo Institute expects the German economy to begin recovering from the downturn caused by the coronavirus crisis. After economic output fell by 2.2 percent in the first quarter and 11.9 percent in the second, the ifo Institute is forecasting growth of 6.9 percent and 3.8 percent in the third and fourth quarters, respectively.
“Things will gradually start to pick up again now,” says Timo Wollmershaeuser, Head of Forecasts at ifo. However, this is based on assumptions about the further course of the epidemic and the political responses to it, which come with a high degree of uncertainty.
“The strong growth expected in the second half of the year can be explained as a result of the low goods production and service levels during the economic shutdown. Shutdown measures have now been relaxed or, for some sectors of the economy, lifted completely,” Wollmershaeuser adds.
However, overall economic output will shrink by 6.7 percent this year compared with 2019. For next year, the ifo Institute expects growth of 6.4 percent, meaning that the level of economic output achieved at the end of 2021 will be back on par with the end of 2019.
The average number of unemployed people will increase from 2.3 million to 2.7 million in 2020. Next year, by contrast, it will fall to 2.6 million. This will take the unemployment rate up from 5.0 to 5.9 percent this year, before it falls again to 5.6 percent in 2021.
According to calculations by the ifo Institute, the number of short-time workers fell to 6.7 million in June 2020, down from 7.3 million in May. The average number of employees will fall from 45.2 million to 44.8 million this year and will rise again slightly to 44.9 million next year.
ifo Business Climate Index Recovers in May 2020
Sentiment among German companies has recovered somewhat after a catastrophic few months. The ifo Business Climate Index rose from 74.2 points (seasonally adjusted) in April to 79.5 points in May. Even though companies once again assessed their current situation as slightly worse, their expectations for the coming months improved considerably. Nevertheless, many companies are still pessimistic about their business. The gradual easing of the lockdown offers a glimmer of hope.
In manufacturing, the Business Climate Index rose appreciably. However, this was due only to companies’ much improved expectations. Industrial companies are still a long way from optimism. Their assessment of the current situation was once again markedly worse.
In the service sector, the business climate recovered notably from its historic low in April. This is primarily the result of a strong rise in expectations. Service providers also assessed their current situation as slightly better. However, companies are on balance still pessimistic.
In trade, too, the Business Climate Index rose substantially. There was a tangible recovery both in companies’ assessments of the current situation and in their expectations. The easing of the lockdown is improving sentiment among retailers in particular.
In construction, the index rose for the first time after seven consecutive months of falls. This was due to an unprecedented improvement in expectations. However, construction companies assessed their current situation as somewhat worse.