German Investor Confidence Jumps on Hopes Worst of Pandemic Over
Investors are confident that the German economy will recover from its worst postwar slump in the second half of the year.
(Bloomberg) --
Investors are growing more confident that the German economy will recover from its worst postwar slump in the second half of the year, with businesses resuming activity after the government lifted restrictions to contain the pandemic.
At the same time, concerns about the present state of Europe’s largest economy are running deep amid rising unemployment and surging bankruptcies.
A ZEW gauge measuring investor expectations for the next six months climbed to 51.0, the highest level in five years and above all estimates in a Bloomberg survey. An assessment of current conditions fell to the lowest since 2003.
The government has deployed hundreds of billions of euros in stimulus to keep the economy afloat. But less than two weeks of lockdown at the end of March have still caused a drop in output of more than 2% in the first quarter, raising questions over how far the European Union’s biggest fiscal efforts can go in preventing lasting damage to shuttered factories, restaurants and shops.
“Optimism is growing that there will be an economic turnaround from summer onward,” ZEW President Achim Wambach said in a statement. While investors see the economy picking up in the fourth quarter, “the catching-up process will take a long time. Only in 2022 will economic output return to the level of 2019”
The Bundesbank predicts the German economy should start its recovery in the course of the second quarter. Yet it also warned on Monday that business activity will significantly undershoot the level recorded in the first three months of the year.
The damage from Germany’s deepest contraction in a decade will tip as many as 29,000 companies into insolvency this year, an increase of more than 50% from 2019. The pandemic has already forced restaurant chain Vapiano SE and department store group Galeria Karstadt Kaufhof to seek court help after sales plunged due to the lockdown.
Expectations for the economic outlook in the wider euro area also improved, ZEW’s report showed.
Some in the 19-nation region including Italy have seen their ability to spend their way out of the crisis severely constrained by already heavy public debt. They have been helped by the European Central Bank’s new emergency bond-buying program and easier access to cheap funding for companies.
Additional relief may come in the form of a 500 billion-euro ($547 billion) EU fund that would make grants to member states that have been hardest hit by the virus. German Chancellor Angela Merkel and French President Emmanuel Macron agreed on Monday to support the package. Ultimately though it will need approval from all 27 member states, with some already having registered opposition.
©2020 Bloomberg L.P.