Business optimism in Germany is at “catastrophic” levels according to a closely watched gauge that has dropped to its lowest point on record as coronavirus ravages Europe’s biggest economy.
The Ifo Institute think tank’s business climate index slumped to 74.3 points in April from 85.9 points in March. Never before has the index fallen so dramatically.
“Sentiment at German companies is catastrophic,” said Ifo president Clemens Fuest. “Companies have never been so pessimistic about the coming months. The coronavirus crisis is striking the German economy with full fury.”
The dire reading is a sign that firms are deeply gloomy about their current situation and the future even as European countries make steps towards reopening their economies.
Germany has been hit hard by the virus but has nonetheless suffered fewer cases and deaths than many of its western European peers.
This has led the country to start planning to ease the coronavirus restrictions that have seen businesses close and demand crater as people stay indoors.
However, policymakers will be worried by the Ifo survey as companies are clearly nervous about the future, which could inhibit a rebound.
In manufacturing, “expectations are marked by extreme pessimism,” Fuest said. Meanwhile in services, “the pessimism of their expectations is also without precedent”.
Germany’s huge export sector has also been badly damaged as global demand has tumbled. Ifo said that in trade, assessments of the current situation have never worsened so quickly.
Jorg Kraemer, Commerzbank’s chief economist, pointed out that the 74.3 reading “is now lower than after the Lehman [Brothers] bankruptcy” shook the global economy in 2008.
“The GDP for the second quarter will be lousy,” Kraemer said. “Policymakers should use every possible leeway to further reduce corona related restrictions on companies and their employees.”