Germany: Business sentiment tanks in March as coronavirus turned into a pandemic
Business confidence tanked in Germany, with the preliminary ifo Business Climate Index nosediving to 87.7 in March from a revised 96.0 in February (previously reported: 96.1). The print marked the steepest monthly drop in nearly two decades, and the index fell to the lowest level since August 2009. Both business expectations and firms’ assessment of the current situation deteriorated. Clemens Fuest, president of the ifo Institute, commented that: “The German economy is speeding into recession.”
Sector-level data in the first-ever preliminary release of the index revealed that the drop was broad-based. Within the manufacturing sector, confidence fell to the lowest level in over a decade. This came on the back of a drop in both the assessment of the current situation as well as the largest fall in business expectations in 70 years. This comes amid widespread plans to curb production and exports in the sector. In the services sector, sentiment fell at the steepest pace on record on worsening expectations and current conditions. A similar pattern was observed in the trade sector as “expectations tumbled to their lowest level since German reunification.” On the other hand, the drop in sentiment in the construction sector was less marked and attitudes regarding the current climate remained positive, although business expectations worsened markedly.
Regarding the impact of the coronavirus on the German private sector, Erik-Jan van Harn, economist at Rabobank, commented: “the relative ability of Germany non-financial corporations to withstand the potential economic downturn of the Covid-19 virus is not very robust, albeit significantly better than during the Great Financial Crisis. The government could support companies by providing liquidity in the short term to absorb a decrease in income when necessary.”
Carsten Brzeski, chief eurozone economist and global head of macro at ING, added: “The depth of the recession will be determined by how long the virus outbreak and the lockdowns will last. Government measures taken over the last few days as well as the ECB’s measures […] should somehow cushion the plunge but are even more important in paving the way for any recovery if and when the worst is behind us.”