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German manufacturing expected to drop at the fastest pace ever

19 Mar 2020 03:39 PM

Preliminary figures showed on Thursday that German manufacturers recorded the largest decline in business expectations in the history of 70 years of industrial surveys, with sentiment in general dropping to the level of recession for 2009.

"The German economy is heading towards recession," said Clemens Fuest, president of the IFO Institute, which published the preliminary results of its monthly survey for March.

The overall business climate index for the largest economy in Europe fell to 87.7 from 96.0 in February. “This is the biggest drop since 1991, bringing the index to its lowest level since August 2009,” Fuest said.

Several German auto manufacturers and suppliers, including Volkswagen and BMW, have announced the closure of factories due to the rapid spread of Coronavirus and supply chain problems.

The IFO said it was difficult to predict the future development of the economy. In an optimistic scenario, the economy may shrink 1.5% this year based on the assumption that production in the industry will quickly pick up once the virus is contained, and in the second scenario, which includes greater production constraints, economic output will shrink by 6%.

On the other hand, the DIW Institute said Thursday that the outbreak will greatly affect the German economy at least in the next two quarters and that it expects GDP to contract by 0.1% this year.

The institute added that the forecasts are based on an optimistic V-shaped scenario where a sharp drop in business activity will be followed by a rapid recovery later this year. The recession could become more severe if uncertainty persists between firms and consumers.

A government source said on Thursday that Germany was planning a 40 billion euros ($43.27billion) package to help small businesses and freelancers threatened with bankruptcy due to the virus crisis. He said that there will be a total of 10 billion euros in the form of direct grants available to small companies, and another 30 billion euros in the form of loans.

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