The value of the IFO index, which follows the mood of the German market, reached historic lows for the second month in a row. This shows that German companies are pessimistic now and in the future.
The COVID 19 outbreak has affected every aspect of life, but perhaps none is as obvious as the world’s economies. A record number of people have applied for unemployment in countries such as the United States, and companies have been forced to shutdown or close down completely.
Pessimistic economic outlook in Germany
The long period of cessation of business has proven to be devastating for the German economy.
On April 24, 2020, it was reported that the German IFO index had dropped to some of its lowest points.
The IFO is an index managed by the IFO Institute, a Munich research institute. The measured value is determined by measuring the mood among 9,000 German companies and is often used as an indicator of the business climate in Germany.
According to the April report, the mood of the business climate was measured at 74.3 points, a decrease from the March value of 85.9. Although the current valuation component is low, it has not yet dropped to the lowest point. However, the expectation component, which measures the mood for the future, indicates a pessimism among German companies.
The last time the IFO index was so bad was in 2009 when a global recession occurred and the economy saw negative growth. It cannot be said immediately how the index will change next month as some German companies are reopening under strict guidelines and schools are expected to resume in the coming weeks.
Long road to recovery
In the meantime, the federal government has approved an economic stimulus package worth EUR 10 trillion as well as initiatives such as unemployment benefits and a reduction in VAT for certain companies. Given the upcoming measures and the slow revival of some companies, it is not impossible that the index will improve in May.
However, public events in Germany are prohibited until the end of August 2020, so a complete recovery is probably not possible until then.
IFO President Clemens Fuest has stated that the middle of the year is the earliest time for a possible recovery and that in this case it will not be a V-shaped high point in the charts. Chancellor Angela Merkel has spread a message of resistance and said that the pandemic is still at an early stage, and has also called for increased support from the European Union.
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