“Situation in the industry is reminiscent of an upswing after the financial crisis”

Unexpectedly optimistic signals are coming from the German economy. The industry is literally galloping away. But economists urge restraint.

Sparks spray during work in a foundry in Waren, Mecklenburg-Western Pomerania.

Dhe German economy seems to be getting through the winter surprisingly well so far. There are no signs of an economic downturn like in spring due to the corona restrictions. This is indicated by the monthly survey of around 1000 purchasing managers from all industries by the London Markit Institute.

As its economists announced on Wednesday in their first December estimate, the signs are even pointing to growth. Compared to November, the barometer increased by 0.8 points to 52.5 points. It is clearly above the so-called growth threshold of 50 points.

However, the survey took place between December 4 and 15, and thus partly before the latest restrictions were imposed. In addition, the mood is very different from industry to industry. In no way leaves the lockdown service provider indifferent, for whom the barometer with 47.7 points is still well below 50 points, despite an increase within a month. In contrast, German industry is still on the upswing. At 58.6 points, their sentiment has reached a 34-month high.

The upward trend was particularly rapid in France

“The situation in industry, where rapid growth is causing supply bottlenecks and strong inflationary pressure, is reminiscent of the upswing after the global financial crisis ten years ago,” says Markit economist Phil Smith. The global recovery in industrial production has led to a shortage of raw materials and increased the pressure on supply chains enormously. In fact, official statistics recently reported a further strong increase in incoming orders in German industry, above all due to demand from China.

In the rest of the euro zone, too, if the London economists are to be believed, the end of the downturn is in sight: While the Markit index for the 19-country currency area still fell noticeably in November, it now rose by 4.5 points within a month – albeit at 49.8 points, it remains just below the growth threshold. The upward trend was particularly rapid in France, from 40.6 points in November to 49.6 points in December.

Not only in the industry is optimism spreading that the delivery of the vaccines in the course of 2021 will allow a return to normality, says economist Smith – as difficult as the short-term outlook looks for most companies in areas with intensive customer contact.

But good mood or not – the rampant pandemic and the corona restrictions on growth will not be without consequences, economists are convinced. “The lockdown in many countries will mean that economic activity will drop significantly in November / December,” says Christoph Weil from Commerzbank.

Weil explains the good results of the purchasing manager survey as follows: When asked about the development of activity, the closed stores would have ticked the box – unlike in the previous month – with unchanged. This means that the proportion of companies with declining activity has fallen.

Even this forecast may prove out of date

In its new forecast, the Munich-based Ifo Institute also dampened hopes of an all-too-clear economic trend. “Because of the recent (lockdown) here and in other countries, the recovery is shifting backwards,” said Ifo economist Timo Wollmershäuser on Wednesday. The production of goods and services will only reach its pre-crisis level at the end of 2021. And according to Wollmershäuser, the current year is likely to end with another decline in gross domestic product as a result of the corona restrictions.

In its calculations, the Ifo Institute assumed that the infection protection measures that have been in effect since November will remain in force until March 2021. From April onwards, the existing infection protection measures would then be gradually relaxed and completely lifted by the summer – so that in 2021 as a whole a real growth rate of 4.2 percent compared to the previous year can be expected. That is noticeably less than the 5.1 percent that the Munich economists have so far promised.

But even this forecast could prove to be out of date, because the closure of parts of the retail trade that was decided on last Sunday was not taken into account. If you take this into account and calculate with a lockdown by the end of January, even 4.2 percent growth in the coming year is unlikely.

This is the conclusion reached by the economists at DIW in Berlin in their new forecast, which was also presented this week. Analogous to the Ifo Institute, they are anticipating a “more noticeable spring recovery, which in total will partially compensate for the previous losses”. The bottom line is that only 3.5 percent growth can be expected for 2021.

How great the forecast uncertainty is, however, shows a look at the statements of other institutes. The IWH announced in Halle that it is expecting an increase of 4.4 percent in the coming year. And the union-affiliated IMK said on Wednesday that if the corona vaccines are actually effective and quickly available, growth of 4.9 percent can still be expected.