September 18, 2020

German business confidence immune to coronavirus

Correspondent in Berlin



The data seems like a space-time paradox. It’s as if the German business confidence survey was conducted when we still didn’t know what the coronavirus was. According to the monthly barometer of the ZEW Institute, the morale of German investors reached its best level since 2004, before the previous crisis, in August, gaining 12.2 points to 71.5. Its worst moment of the pandemic was the month of March, with a fall of 49.5 points and in August the experts still had a slight drop, given the circumstances. Factstet, for example, forecast a decline to 58 points from 59.3 in July. It is not for less, after German GDP just registered a 10% fall from April to June and with an expected decrease of 6.3% at the end of the third quarter. However, the significant boost that both exports and industrial production have experienced since June, 14.9% and 8.9% respectively, seems to weigh more on the minds of companies.

The same euphoria shows the IFO business confidence index, which rose again in July for the third consecutive month, due to the fact that “The German economy recovers step by step”. This index rose to 90.5 points in July, from the revised 86.3 points in June because “companies are notably more satisfied with their current situation” and “are also carefully optimistic about the coming months,” said the president of the Ifo, Clemens Fuest, during the presentation of the data. Especially in the manufacturing sector, business confidence improved again considerably and companies in the sector were already perceiving that their situation not as “bad” as in previous months. They expect their businesses to grow again in the coming months.

The use of productive capacities increased in July to 74.9% from 70.4% in June, but still well below the long-term average of 83.5%. In the services sector, business confidence also rose sharply to positive territory, and the upward trend in trade also continues, especially in the retail sector, where there has been a notable improvement. In construction, business confidence also continues to improve and companies are more satisfied with their situation, while being less pessimistic about their expectations. But confidence is not based only on expectations, but on realities already experienced thanks precisely to the coronavirus. The health crisis has forcibly revolutionized the world of work, and employers like what they see.

German companies have fared quite well in this digitization test and, according to a study by DAK Gesundheit, the banking industry and insurance has been an absolute pioneer in digital response. In March, the industry seamlessly moved 90% of its work to the home office and canceled business trips without consequences, opening a window for cost cutting.

Allianz board member Christof Mascher has told Handelsblatt for example that he expects up to 40% of the roughly 150,000 jobs that can be retained work from home in the short term in 44 countries. According to another study, this one by Management for European Economic Research (ZEW), social enterprises also want to keep employees working from home after the health crisis, as does the information industry. In fact, the German Economic Institute expects a contraction of the real estate market for companies this year. This is the reason why German companies are not afraid of new second wave restrictions, which, by the way, they rely mostly on.

The German service sector is counting on the restrictions, one way or another, last for a total of 8.9 months, those of the commercial sector 8.6 months and construction 8.2 months, according to the IFO conjuncture survey. German businessmen believe, for example, that sports life will be restricted for 13 months, cultural and artistic life for at least 11 months. The couriers and couriers, however, the first ones will return to total normality, limiting the coronavirus parenthesis to 6 or 7 months. They strongly see the light at the end of the tunnel, especially after the approval of the European Council to the Reconstruction Fund and do not seem scared by an economic crisis recently described in this same country as “unprecedented since World War II”.

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