German Confidence Plunges as Worst Slump in Decade Looms
German Confidence Plunges as Worst Slump in Decade Looms
(Bloomberg) --
German business confidence plunged the most in almost three decades, offering chilling evidence that Europe’s largest economy may be headed for its worst recession since the global financial crisis.
The drop means sentiment among Germany executives is now the weakest since 2009. That mood is probably reflected across Europe after governments shut down large parts of public life and factories temporarily suspended production to prevent the spread of the deadly coronavirus.
Forecasts are struggling to capture the extent of the disruption, which has swept across the continent in a matter of weeks. The European Central Bank stepped in with emergency stimulus on Wednesday night to aid the region’s ailing companies, after numerous governments pledged to do their utmost to protect workers.
Germany’s leading research institutes issued updated economic projections on Thursday, along with words of caution stressing it’s almost impossible to gauge to full impact of the crisis. Accordingly, forecasts for 2020 diverge widely, with DIW offering the least pessimistic outlook and IfW, the Institute for the World Economy, the most gloomy one.
| Best Scenario | Worst Scenario | |
|---|---|---|
| DIW | -0.1% | n/a |
| RWI | -0.8% | n/a |
| Ifo | -1.5% | -6.0% |
| IfW Kiel | -4.5% | -8.7% |
The euro continued its decline on Thursday. The single currency traded at $1.0808 at 11:19 a.m. Frankfurt time, down 1%.
Heavyweight corporations including Volkswagen AG and Daimler AG have idled their European plants as the rapidly spreading virus wreaks havoc on global supply chains and sucks the air out of consumer demand. Companies including Deutsche Lufthansa AG have signaled they’re planning to seek public aid.
Yet it’s services providers, which helped Germany grow last year despite its deep manufacturing slump, who are particularly vulnerable right now. Often smaller businesses without bigger reserves that would tide them over, their survival is at risk by the travel bans, shop closures and prohibition of assemblies.
What Bloomberg’s Economists Say
“The coronavirus has economists scrambling to update their forecasts for global growth. Behind those forecasts is uncertainty about the number of cases, the geographical spread of the disease, the fatality rate, and the trajectory going forward. Until those uncertainties are resolved, even forecasts based on the best available information and smartest modeling techniques could be wildly off base.”
-- Justin Jimenez, Eliza Winger and Tom Orlik. Read the GLOBAL INSIGHT
The government has earmarked 550 billion euros ($600 billion) to protect companies and workers. Finance Minister Olaf Scholz said Wednesday he stands by his plans to invest record sums in infrastructure and climate policies -- even as the virus risks throwing over carefully crafted budget prospects.
The ECB, for its part, launched an extra emergency bond-buying program worth 750 billion euros in the latest attempt to calm markets and protect the euro-area economy.
“The entire global economy could face a deep crisis, the exact dimensions of which cannot yet be predicted,” said Marcel Fratzscher, President of the DIW Institute. “The important thing now is to provide financial aid quickly and without red tape.”
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