LONDON (ICIS)--Germany has passed through the deepest part of the economic trough brought on by the coronavirus pandemic, the country’s economic ministry said on Monday, with activity increasing but capacity still underutilised.
The country’s key manufacturing industry increased production by 10.3% in May, month on month, driven particularly by automotive production and components, with further improvements expected for June.
The data points to industrial production having bottomed out and starting to rebound, Germany’s Federal Ministry of Economics and Technology (BMWi) said, after a downturn that significantly pre-dated the pandemic and chilled conditions in wider eurozone manufacturing since the second half of 2019.
Stronger order books point to production increasing over the next few months, but risks still remain in terms of infection rates elsewhere, in turn hitting demand growth from non-EU countries.
Exports rose in May, but Germany is unlikely to return to economic growth before the third quarter even if there are no further shocks, according to the ministry.
Several key trading partners, including the US and the UK, remain embattled by the spread of coronavirus, with demand recovering in those regions slower than from countries such as China.
Exports remain at around 75% of levels before the onset of the pandemic.
The return of the automotive sector to production after essentially coming to a halt in April is the key driver of thawing industrial production, with the construction sector expanding at a modest 0.5%.
Unemployment is also expected to rise in June but at a more moderate level than seen in preceding months, increasing by 69,000 people compared to 372,000 and 237,000 in April and May.
Real output in the EU is only expected to return to pre-Covid levels in 2022, according to data from the International Monetary Fund (IMF) on Monday, a pace that could accelerate if a vaccine is found quickly or drag longer in the event of significant new waves of infection, still feared for the winter flu season.
Europe’s high-debt countries, which often see debt burdens increase during difficult periods and stabilise but not fall during prosperous years, are likely to bear the brunt of the social impact of unemployment and demand falls that characterise the current crisis, with social distancing likely to dog the pace of recovery until the pandemic ends or is more effectively contained.
The extent of the social and economic shock brought on by the virus, unseen for several generations, should be a prompt not to shift back to pre-crisis operations, according to IMF Europe department director Poul Thomsen.
“This pandemic could last several years, and may well be followed by future pandemics. Europe must strive for a new, greener economy, one that can operate efficiently even with prolonged social distancing,” he said.
“It may take many years to complete, but transformation needs to be nurtured starting now. We cannot just return to the way things were before,” he added.
Central bank policy should continue to be targeted at calming markets and ensure that credit continues to flow to businesses, which could involve further stimulus measures.
“This means policy rates must remain at extraordinarily low levels for now, supported by net asset purchases that implicitly look to bond spreads and issuance volumes,” Thomsen added.