The German economy is surprisingly optimistic

Good news from the German economy: The lockdown seems to be leaving companies relatively cold. But not everyone shares the optimism.

In the industry, the Ifo index has risen significantly: companies are assessing the current situation better than they have been since January.

BBetter assessment of the situation, better prospects: The mood in the German economy improved in December. As the economists of the Munich Ifo Institute announced on Tuesday, the business climate increased compared to November – despite the lockdown. The basis for this assessment is the Ifo barometer, which is based on the monthly survey of around 9,000 companies and is considered the most important sentiment indicator for the German economy. Compared to November it increased from 90.9 to 92.1 points. The barometer had previously fallen for two months in a row.

“It is true that the lockdown is hitting individual industries hard,” said Ifo President Clemens Fuest. “However, the German economy as a whole is showing itself to be resilient.”

The increase in December took place across all sectors. In industry, the mood improved again significantly, and assessments of the current situation even improved to their highest level since January. Optimism about the coming months also increased noticeably. The chemical industry and mechanical engineering in particular contributed to this development.

However, according to the Ifo barometer, there was also a slight recovery in the service sector, both in terms of the situation and expectations. Areas such as transport and logistics as well as real estate and housing contributed in particular to this. Tour operators, the hospitality industry and cultural workers, on the other hand, continue to suffer from the crisis. The fact that the mood in retail has also improved is mainly thanks to industry-related wholesalers. Retailers, on the other hand, were more pessimistic about the future.

Not the only indicator

Most of the replies from companies were received before the latest corona restrictions were imposed. Nevertheless, economists see a glimmer of hope, lockdown or not. “The prospect of the early use of effective vaccines and the successes in fighting pandemics in Asia are immunizing the economy and the business climate,” commented Fritzi Köhler-Geib, chief economist at KfW Bank. Although Europe and many American regions are in more or less strict lockdowns, the industry is still catching up – “a development that continues for a short time despite the tightening that has been in force since Wednesday,” said Köhler-Geib.

She thinks that the closure in the Christmas business will be a hard blow for stationary retail, but the effect is likely to be “limited” in economic terms due to its rather small share in economic output and the shift to online retail.

The Ifo index is not the only economic indicator that is surprisingly pointing upwards. The monthly survey of around 1000 German purchasing managers from all sectors by the London Markit Institute also exudes optimism. As its economists announced on Wednesday in their first December estimate, the signs are even pointing to growth. The industry in particular is currently doing very well thanks to strong demand from China. However, the Markit survey took place between December 4th and 15th and thus, like the Ifo survey, partly before the latest restrictions were imposed.

Less hopeful news

Many economists therefore urge restraint. “Don’t let yourself get carried away by the stronger Ifo index,” said Carsten Brzeski from the Dutch ING Bank on Friday. “As a result of the new lockdown measures, the German economy entered a hibernation phase at the turn of the year, and it will take until the second quarter for a significant recovery to take place,” said Brzeski. It is fitting that some research institutes presented new forecasts this week – with less good prospects for the coming months. Because of the lockdown, the Berlin DIW only expects a growth rate of 3.5 percent in the coming year, the Kiel Institute for the World Economy only with 3.1 percent.

Also from the Institute for Employment Research (IAB) came less hopeful news on Friday. Every third company affected by the November lockdown sees its existence threatened, said the IAB economists. The hospitality industry was hit hardest by the lockdown regulations in November, and 90 percent of businesses there stated in a survey that they had to close in whole or in part. In addition, 12 percent of the companies in the service sector reported being affected, as well as 8 percent of the companies in the education, health and social services.