German industry sentiment at ‘extreme pessimism’ as April demand collapses

Jonathan Lopez


LONDON (ICIS)–The European economy’s manufacturing powerhouse Germany continues to post record lows in sentiment after April’s demand collapsed due to generalised lockdowns across the globe.

On Friday, the influential Ifo sentiment index for the manufacturing sectors in Germany fell to lows not seen since 2009, with the research institute issuing a blunt diagnosis for industry.

“Industrial companies’ current business situation worsened dramatically. Expectations are marked by extreme pessimism. The expectations indicator fell to a historic low. Demand for industrial products has collapsed,” it said.

Germany’s chemicals industry is the largest in Europe, with €193bn annual sales in 2019 and a 450,000-strong workforce.

Germany’s manufacturing sectors are key exporters, and tend to be hit greatly by global slowdowns that dent trade in goods.

After lows in March, the Ifo sentiment index for manufacturing – which accounts for around a fifth of Germany’s GDP – fell even further in April.

Ifo sentiment April 2020 March 2020 Feb 2020 Jan 2020 Dec 2019 Nov 2019 Oct 2019 Sept 2019
Manufacturing -44.4 -18.7 -1.6 -1.8 -5.0 -6.0 -5.4 -6.5

Germany’s sentiment index in the services, trade, and construction sectors also collapsed in April, with the general index entering record lows.

Ifo sentiment April 2020 March 2020 Feb 2020 Jan 2020 Dec 2019 Nov 2019 Oct 2019 Sept 2019
All sectors -37.6 -12.2 9.8 9.6 10.5 7.8 6.9 7.3

“Service providers have never reached such a poor assessment of their current situation. The pessimism of their expectations is also without precedent,” said Ifo’s president Clemens Fuest.

“In trade, the Business Climate Index continued to nosedive. Assessments of the current situation have never worsened so quickly.

“In construction, the index has never sunk so abruptly. The same is true for the indicator of the current situation and for expectations.”

The data published by Ifo on Friday came to confirm some analysts’ concerns about the German economy entering a recession in the second quarter, with large GDP falls during the period.

While a recovery in the second half of 2020 is expected, as lockdown measures are gradually lifted, GDP in the most populous EU country is expected to fall around 4% in 2020.

“We expect the German economy to experience a massive recession in the first half of the year, with GDP falling significantly in the second quarter,” said analysts at Oxford Economics on Friday.

“Together with yesterday’s PMI figures, today’s Ifo confirms our expectation of a deep recession in Germany in H1 [first half 2020]. Although we see economic activity recovering during the second half of the year, we expect an overall GDP contraction of 3.9% in 2020.”

PMI figures published this week for manufacturing and services industries in the 19-country eurozone – of which Germany is a member – showed activity falling to historic lows.

Silver line shows assessment of current business conditions; red line shows the Ifo business climate index; and blue line shows business expectations. Source: Ifo

Front page picture: Frankfurt’s financial district; archive image
Source: Michael Probst/AP/Shutterstock


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