German industry expectations rise in May but situation remains dire

Author: Jonathan Lopez

2020/05/25

LONDON (ICIS)--Germany’s export-reliant industrial companies’ sentiment on future expectations markedly improved in May as the country started easing its lockdown, but current business conditions remain bleak, research institute Ifo said on Monday.

However, the extent of the downturn caused by the coronavirus (see graph) may cause the worst recession in Germany in decades.

“Nevertheless, many companies are still pessimistic about their business … In manufacturing, the Business Climate Index rose appreciably [but] this was due only to companies’ much improved expectations,” said Ifo’s president Clemens Fuest.

“Industrial companies are still a long way from optimism. Their assessment of the current situation was once again markedly worse.”

The German chemicals industry is the largest in Europe; employing around 450,000 as of end of 2019 and sales of €193bn.

The country’s manufacturers heavily rely on exports, suffering greatly from global downturns.

Expectations in the chemicals-intensive construction industry, which had already slowed down even before the pandemic, showed an “unprecedented improvement” in May although the current situation was also assessed as negative.

With a baseline of 100, set in 2015, the average Ifo Business Climate Index – including services and trade, along with manufacturing and construction – rose from 74.2 points in April to 79.5 points in May.

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Analysts have praised Germany’s management of the pandemic, with sharply lower infection and death rates than peers in the EU, which could help the country emerge before other European countries from the crisis.

But the road to “full recovery” will be long, said analysts at Oxford Economics on Monday.

“The strict containment measures, aimed to slow the spread of the virus, appear to have been successful. However, along with social distancing, they triggered a deep slump in domestic demand, which overshadowed the plunge in external demand,” said Oxford Economics.

“This makes this downturn quite different from previous slumps.”