Investors Confident to See German Growth Returning This Year
Investors believe Germany’s economy will bounce back in third quarter, as the government eases restrictions amid coronavirus.
Investors expressed confidence that Germany’s economy will start growing again in the third quarter after a sharp coronavirus shock.
While an assessment of current conditions in Europe’s largest economy plummeted in April to the lowest in more than a decade, reflecting the damage done by a month-long lockdown to contain the spread of the disease, expectations for the next six months climbed to the highest level since mid-2015.
The improvement showing there are now more optimists than pessimists with regard to Germany’s prospects in the second half came as a surprise to all economists surveyed by Bloomberg. It may reflect cautious signals of confidence from Chancellor Angela Merkel’s government, which started easing some restrictions this week to restart the economy.
“Financial-market experts are beginning to see a light at the end of the very long tunnel,” ZEW President Achim Wambach said in a statement. Even though they predicted Germany’s recession won’t extend beyond the current quarter, they don’t expect output to return to pre-virus levels before 2022, he said.
Economic output declined sharply at the start of the year and will shrink at an even steeper pace in the April-June period, with a “rapid and strong” recovery unlikely as long as containment measures remain in place, the Bundesbank said Monday.
What Bloomberg’s Economists Say...
“Germany’s most stringent coronavirus containment measures started later than elsewhere, finished sooner and look less damaging than in many other European countries. Add in a large dose of fiscal support and it looks as if the euro area’s largest economy will do better than most.”
- Jamie Rush. Read his GERMANY INSIGHT
Both the German government and the European Central Bank have unveiled massive stimulus programs to prevent lasting economic damage, though company reports from across the region reflect significant pain. Leading automaker Volkwagen AG last week scrapped its full-year outlook after sales and vehicle production were brought to a halt in key markets, while sportswear maker Adidas AG was forced into seeking external aid.
Retailers may start to see tensions easing in coming weeks, after Merkel’s administration agreed with the country’s 16 states to allow smaller stores to reopen after a month-long shutdown. Still, many businesses like bars and restaurants remain shuttered, contributing to a continued drag on consumption.
Bloomberg Economics predicts the economy will contract 5.5% this year -- a similar pace to the one observed in 2009 during the Great Financial Crisis. The 19-nation euro area will probably fare even worse.
A ZEW gauge for current conditions in the region hit a record low this month. Expectations improved at a scope similar to Germany’s.
©2020 Bloomberg L.P.