ifo Institute's latest Business Climate survey data for Germany is pointing to continued weakness in the recovery momentum:
Notably, all four sectors covered remain under water:
Current conditions are deteriorating month-on-month in two sectors, expectations have deteriorated in all four sectors.
Germany's ifo Institute published their forecasts for 2020-2022 today. These represent an improvement on Summer forecasts, but continue to show big impact of the COVID19 pandemic lasting beyond 2021:
Private consumption is expected to be 0.82 percentage points below 2019 at the end of 2022, and barely in line (0.78 percentage points above) with 2018 levels. GDP is forecast to reach 1.34 percentage points above 2019 levels in 2022. Employment levels are projected to stay below 2019 levels through most of 2022, and unemployment numbers are expected to stay above their 2019 levels through the entire 2022. General Government deficits will remain in 2020, 2021 and 2022.
Using pre-2020 trend growth, German economy would have been 1.66 to 1.85 percentage points ahead of the GDP levels now forecast for 2022, which means that under the current forecasts, we can expect recovery to the pre-COVID19 trend GDP by the end of 2024. This assumes ca 1.7 percentage points growth over 2023-2024 horizon, which may be quite optimistic, given prior trend growth rates of 0.975% pa.
ifo forecasts note the state of economic uncertainty: "The degree of uncertainty in our forecasts is enormous because nobody knows how the coronavirus pandemic will develop, whether there will be a hard Brexit after all, and whether the trade wars will be resolved". Which, of course, highlights the environment of VUCA that we are living in.
ifo Institute's latest exports expectations for Germany are out and the data is quite interesting:
Firstly, expectations moderated in August, compared to July, although on balance, there are still more positive sentiment responders as opposed to the negative ones. This moderation is surprising, because of the sharpness of prior COVID19-related collapse and because August saw more global relaxation of COVID19 restrictions.
Secondly, it appears that expectations for exports growth are now starting to revert back to pre-COVID19 'norm' of anaemic growth. This can be best seen by looking at longer term expectations data:
For those nostalgically inclined, 2019 was a woeful year for global trade, as reflected in the 2019 average in the chart above. And this was before COVID19 pandemic. In fact, exports outlook has been deteriorating from around mid-2018, on.
A return to the pre-COVID19 'normal', if confirmed, is not the good news, given that German exports did not recover from the knock-down they sustained during the COVID19 pandemic.
ifo Institute's latest economic barometer for Germany is showing continued signs of recovery in the German economy, with remaining pressures in terms of current assessment of business conditions and more positive outlook forward (expectations):
Business expectations are now ahead of the same for December 2019 - February 2020 pre-pandemic period, which really says little about the levels of activity expected and more about the speed of adjustments to the expected activity. What matters more is the current climate perception. This is still some 11 points below the three months prior to the pandemic.
Given that German economy has largely moved past the stage of restricted activity, this is worrying, as it suggests the lack of domestic demand recovery in the medium term.
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