The Ifo business climate signals recovery – despite the lockdown

Christmas shopping

The HDE expects that stationary non-food retailers will lose 20 percent of their annual sales as a result of the corona measures.


(Photo: dpa)

Berlin The German economy seems to be coping well with the lockdown so far: The Ifo business climate rose again in December – after two months of slight decline. Germany’s most important leading indicator was 92.1 points after 90.9 points in the previous month. The 9,000 business leaders questioned rated their situation as better with 91.3 points after 90.0 points and their business prospects for the next six months with 92.8 points after 91.8 points.

The signs point to recovery, especially in industry. Above all, the chemical industry and mechanical engineering drew hope again, according to the survey published on Friday.

But surprisingly, the service providers and retailers no longer assessed their situation as bleakly as they did a month ago, and even their expectations were a little less pessimistic than before. However, among the service providers, it was primarily the transport and logistics companies as well as the real estate and housing sector that were relying entirely on the upturn. According to Ifo, tour operators, the hospitality industry and cultural workers are still suffering severely from the crisis and the lockdown.

In the retail sector, on the other hand, the wholesalers’ optimistic assessments raised the barometer. In the retail sector, a majority still assessed their situation as good, but expectations clouded over. However: Most of the answers were received by the Ifo before the tightened lockdown.

The lockdown slows down less than feared

“The prospect of the early use of effective vaccines and the successes in fighting pandemics in Asia are immunizing the economy and the business climate,” commented Fritzi Köhler-Geib, chief economist at the state development bank KfW. Although Europe and many US regions are in more or less strict lockdowns, the industry is still catching up, she said.

The economic research institutes had found in their winter forecasts this week that the lockdowns in Germany and Europe are initially slowing down the strong upswing in summer. From the second quarter of 2021, however, they expect growth again: the forecasts for the new year are between 3.1 percent (IfW-Kiel) and 4.9 percent (RWI and IMK).

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The economic researchers assume that there will be contact restrictions for the entire winter half-year up to the end of March, roughly equivalent to the partial lockdown at the beginning of November. Because if the measures are relaxed again in January, there is a risk that the number of infections will rise again drastically.

Economists disagree on whether the tightened lockdown from December 16 to January 10 will push the economy back into recession and cause gross domestic product to shrink in the fourth quarter of 2020 and the first quarter of 2021.

The Munich-based Ifo Institute expects a minus of 0.4 percent in the fourth quarter, but growth again in early 2021. Most other institutes, on the other hand, consider a slight recession to be more likely.

The industry is growing steadily – even in winter

The economists hope, however, that the winter lockdowns are not as extensive everywhere as in spring: nowhere in the world is industry completely at a standstill, as was the case at times – also due to delivery bottlenecks from Asia – in the first lockdown.

In Germany in particular, the industrial upswing of the summer seems to have continued into December. Truck traffic is an early indicator of this. According to the truck toll index, this has increased in recent weeks and is well above the pre-crisis level.

The auto industry, which had been badly affected by supply chain disruptions in the spring, also developed positively recently. According to figures from the automotive association VDA, 20 percent more cars were produced in November than in October.

The economists of Commerzbank expect total industrial production to have grown by 2.5 percent in November compared with October. According to the Federal Statistical Office, it had increased by 3.2 percent in October. However, it was still five percent below the pre-crisis level.

Incoming orders have also been optimistic recently. In October they were six percent higher in Germany in the auto industry than in February, the month before the crisis, and 2.5 percent in mechanical engineering, reports the Federal Statistical Office.

The first leading indicator for December, the IHS Markit purchasing manager survey last Tuesday, also showed that the industry is providing strong support for the economy: production has expanded further.

The order backlog in the manufacturing sector also gives hope: Compared to February 2020, the month before the restrictions due to the corona pandemic began in Germany, it was 2.3 percent higher in October 2020, seasonally and calendar adjusted, according to the Federal Statistical Office.

For manufacturers of intermediate goods, the order backlog in October 2020 was 2.3 percent higher than in September 2020. For manufacturers of capital goods, it rose by 1.1 percent. In the consumer goods segment, the order backlog was 2.9 percent higher than in September 2020.

Christmas is a time of economic downturn every year

How much the Christmas lockdown will dampen the economy is still unclear. Since a large part of the economy is only working at half its speed from Christmas Eve onwards, Ifo economic director Timo Wollmershäuser considers the effect of the tightening on the overall economy to be limited.

In the last week before Christmas, however, there are likely to be larger failures in stationary non-food retailing, which is now also suffering: For these stores, the retail association HDE expects that they will lose 20 percent of their annual sales this year – while online retailing is about one Growth of more than 20 percent.

This year, however, the hospitality and hotel industry will be hit harder than the retail trade: its sales during the lockdowns will be irretrievably gone – while fashion stores can still hope for consumption to catch up in 2021.

“The tightened lockdown is a setback for the overall economic recovery process, but not a relapse into a crisis like last spring,” said Stefan Kooths, Economic Director of the IfW. The consumption-related industries would be burdened.

“But the industry will not come under the wheels again – mainly thanks to an overall robust international business -”, expects Kooths. The industry is benefiting from the recovery in the global economy and, above all, from growth in China.

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